BOND REPORT: 2-year Yields Post Sharp Rise In October As Trump Nears Decision Of Next Fed Chief

By Mark DeCambre, MarketWatch , Sunny Oh Features Dow Jones Newswires

Short-dated Treasury yields rose sharply in October amid anticipation over who will lead the Federal Reserve when Chairwoman Janet Yellen's term ends in February.

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While yields mostly held their ground on Tuesday as investors in government bonds a day ahead of the conclusion of a two-day Federal Reserve policy meeting, which may offer Wall Street further clues about monetary policy, even if a rate increase isn't expected this time.

Where are Treasury yields?

The 10-year Treasury yield was mostly unchanged at 2.374%, and up 4.6 basis points in October.

The 2-year yield , the most sensitive to shifts in interest rate expectations, added 1.2 basis point to 1.592%, extending an 11 basis point gain for the month.

The 30-year bond yield , ticked a basis point down at 2.873%, but was up overall 1.4 basis points this month.

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Bond prices move inversely to yields.

What's driving the market?

The Fed gathering isn't expected to produce any changes to monetary policy. Bond investors will watch for policy makers' views on the health of the U.S. and global economy and expectations for wage growth and prices, which have risen tepidly, bedeviling economists.

Slack in price growth and wages, running below the Fed's 2% annual target for inflation, despite healthy growth in jobs, has helped to support buying in long-dated bonds because rising inflation chips away at a bond's fixed interest payments.

See: Fed statement may have treats for the hawks and the doves (http://www.marketwatch.com/story/fed-statement-may-have-treats-for-both-hawks-and-doves-2017-10-27)

President Donald Trump is set to reveal his choice for the next head of the Fed on Thursday, a White House official said (http://www.marketwatch.com/story/trump-to-announce-his-pick-for-fed-chair-on-thursday-2017-10-30), and a number of reports indicate that Fed Gov. Jerome Powell, who is viewed as likely to be less aggressive in raising interest rates than some rival candidates, is likely to be named successor to Chairwoman Janet Yellen.

Read: Here's how a new Fed chief typically spooks the Dow (http://www.marketwatch.com/story/heres-how-a-new-fed-chief-typically-spooks-the-dow-2017-10-31)

What data are in focus?

What are strategists saying?

"The yield curve is flattening. I think that's a result of the stronger data we've seen today. People are seeing the stronger data and thinking more rate hikes are in the cards," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. The yield curve refers to a line plotting yields across Treasury maturities and can flatten when rate increase expectations pushes up short-dated yields faster than longer-dated yields.

What are other assets doing?

The Bank of Japan left monetary policy unchanged (http://www.marketwatch.com/story/bank-of-japan-leaves-monetary-policy-unchanged-2017-10-30) but communicated concerns about sluggish inflation and said it expects to maintain its accommodative policy stance. The BOJ's position contrasts with moves by the Fed, the European Central Bank and other major central banks, which are gradually moving away from or slowly winding down easing measures

The yield on the 10-year Japanese government bond was at 0.064%, compared with 0.059% in the previous session. In Europe, the 10-year German bond , known as the bund, was at 0.363%.

The yields on the 10-year Spanish bond declined 3.7 basis points to 1.452%. European yields have been reacting to a fight by Catalonia for its independence from Spain, which has implications for the integrity of the European Union and the euro .

(END) Dow Jones Newswires

October 31, 2017 16:54 ET (20:54 GMT)