BOND REPORT: 10-year Treasury Yield Touches 7-month High As Anticipation Over Fed Pick Grows

By William Watts, MarketWatch Features Dow Jones Newswires

2-year yield pushes past 1.60%, the highest level since 2008

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Treasurys continued to weaken Wednesday, pushing the yield on the benchmark 10-year note to its highest level since March, as investors await President Donald Trump's pick to head the Federal Reserve once Chairwoman Janet Yellen's term ends in February.

See:Bond bull market faces 'moment of truth' as Treasury 10-year yield crosses 2.40% (http://www.marketwatch.com/story/bond-bull-market-faces-moment-of-truth-as-10-year-yield-crosses-240-2017-10-25)

What are yields doing?

The yield on the 10-year Treasury note rose 3.8 basis points to 2.444%, after earlier trading at a session high of 2.474%, its highest mark since March 21, according to FactSet. It broke through 2.40%, a key level, during the previous session.

The 2-year Treasury yield rose 3.3 basis points to 1.608%, while the 30-year Treasury bond yield was up 3.2 basis points at 2.954%. Yields rise as Treasury prices decline.

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What's driving the market?

Trump on Monday said he was very close to announcing his decision on Fed leadership. In a meeting Tuesday with Republican senators on Capitol Hill, Trump asked for a show of hands (http://www.marketwatch.com/story/trump-asked-senate-republicans-who-should-be-next-fed-chair-and-john-taylor-reportedly-was-the-winner-2017-10-24) on who they though should be the next Fed chair, with Stanford economist John Taylor, who is seen as likely to take a more hawkish approach, the apparent winner. Trump's economic adviser Gary Cohn is out of the running, according to a report on Wednesday (http://www.marketwatch.com/story/gary-cohn-out-of-running-for-fed-chair-report-2017-10-25)

New economic data in the morning hinted that growth could heat up toward the end of the year, and that Friday's third-quarter GDP number could be higher than expected. Solid business investment and a faster pace of home sales paint a portrait of an economy picking up. But unless growth pushes inflation toward the Fed's 2% target, it's difficult to see how the U.S. central bank, an institution whose main mandate is price stability, can raise interest rates much higher.

Read:Can a Powell-Taylor ticket at the top of the Fed really work? (http://www.marketwatch.com/story/can-a-powell-taylor-ticket-at-top-of-the-fed-really-work-2017-10-23)

(http://www.marketwatch.com/story/can-a-powell-taylor-ticket-at-top-of-the-fed-really-work-2017-10-23)Investors are also awaiting a Thursday meeting of the European Central Bank that's expected to see President Mario Draghi unveil a plan to begin tapering the bank's monthly asset buying program in January.

See:Mario Draghi needs to avoid a 'taper tantrum' when the ECB meets (http://www.marketwatch.com/story/mario-draghi-needs-to-avoid-a-taper-tantrum-when-the-ecb-meets-2017-10-23)

(http://www.marketwatch.com/story/mario-draghi-needs-to-avoid-a-taper-tantrum-when-the-ecb-meets-2017-10-23)Also read:Why Italy faces the worst shock in Europe as ECB prepares to taper bond buys (http://www.marketwatch.com/story/why-italy-faces-worst-shock-in-europe-as-ecb-prepares-to-taper-bond-buys-2017-10-24)

(http://www.marketwatch.com/story/why-italy-faces-worst-shock-in-europe-as-ecb-prepares-to-taper-bond-buys-2017-10-24)

What are market participants saying?

"Major bond markets face a possible triple whammy over the next week or so. President Trump could reveal a more hawkish Fed lineup, the ECB could taper bond purchases back significantly and the Bank of England could lift the base rate for the first time in a decade," said Steven Barrow, currency and fixed-income strategist at Standard Bank. "But while bonds may wobble on these threats we don't expect yields to soar at this stage."

Barrow argued that scope for a bond selloff, and a rise in yields, is limited by inflation's continued failure to show up.

But dip-buyers jumped back into the bond market noon to take away some momentum from the selloff. "I think it's true bargain hunting. We've seen some of the highest levels since 2008 like in the 2-year note," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

What's on the economic calendar?

Durable goods orders rose 2.2% in September (http://www.marketwatch.com/story/business-investment-surges-again-in-september-durable-goods-report-shows-2017-10-25), well above the MarketWatch forecast of a 0.7% gain.

New home sales accelerated in September to an annualized pace of 667,000, the fastest pace in a decade (http://www.marketwatch.com/story/new-home-sales-roar-to-a-10-year-high-in-september-2017-10-25). Economists were expecting new transactions to come in at a 555,000 annual rate.

See:MarketWatch Economic Calendar (http://www.marketwatch.com/economy-politics/calendars/economic)

(http://www.marketwatch.com/economy-politics/calendars/economic)Economic Preview: Here's the kind of spending that leads to bigger paychecks and a roaring economy (http://www.marketwatch.com/story/heres-the-kind-of-spending-that-leads-to-bigger-paychecks-and-a-roaring-economy-2017-10-21)

(END) Dow Jones Newswires

October 25, 2017 17:17 ET (21:17 GMT)