BOND REPORT: Treasury Yields Extend Decline As Traders Look For Trump To Pick Powell To Head Fed

By Sunny Oh Features Dow Jones Newswires

Treasury yields extended the previous day's fall (http://www.marketwatch.com/story/treasury-yields-tip-higher-as-global-equities-climb-fed-policy-update-looms-2017-11-01)on Thursday as investors waited for President Donald Trump to nominate Fed. Gov. Jerome Powell as the next chief of the Federal Reserve.

Continue Reading Below

What are Treasury yields doing?

The 10-year note yield was at 2.354%, compared with 2.378% on late Wednesday. The 2-year note yield was at 1.612%, versus 1.620%. The 30-year bond yield was at 2.840%, from 2.865%.

Bond prices move in the opposite direction of yields.

What is driving markets?

Investors anticipate that Powell could be named head of the U.S. central bank as early as Thursday to replace Fed Chairwoman Janet Yellen when her term ends in February. Powell is perceived as a nominee that would be less aggressive about raising interest rates than other potential candidates, and one who would favor further deregulation of the banking sector.

Continue Reading Below

He spoke earlier on Thursday, but his speech was mostly focused on alternatives to the London interbank offering rate (https://www.federalreserve.gov/newsevents/speech/powell20171102a.htm), the rate banks charge each other for short-term loans, which will be phased out in 2021.

Market participants are also expecting House Republicans to submit their tax bill on Thursday after a one-day delay (http://www.marketwatch.com/story/house-gop-delays-tax-bill-plans-to-keep-top-individual-rate-of-396-2017-10-31). Further postponements could prove bullish for bonds, as tax cuts could widen budget deficits, forcing the Treasury Department to issue more debt. The fresh supply could weigh on prices.

What did analysts say?

"Of all of the Fed chair candidates not named Janet Yellen, Powell is most likely to orchestrate continuity of policy purpose without fostering significant uncertainty," said Ward McCarthy, chief financial economist for Jefferies.

"What's more interesting, and an open question for us for the time-being, is what happens if the White House is unable to shepherd their pick through a fractious Congress in time for Yellen's term expiry," wrote Aaron Kohli, fixed-income strategist at BMO Capital Markets.

What else are on investors' radar?

What assets are on the move?

U.K. government bonds saw heavy buying, pulling yields lower, after the Bank of England raised rates for the first time in a decade on Thursday. The U.K. 10-year government bond yield fell 7.5 basis points to 1.270%. Seven out of nine members of the BOE's policy-making panel voted for hiking its benchmark interest rate to 0.5% from 0.25%. Chief central banker Mark Carney said the BOE would raise rates two more times over the next three years.

See: Bank of England raises key interest rate to 0.5%, first hike in 10 years (http://www.marketwatch.com/story/bank-of-england-raises-key-interest-rate-to-05-first-hike-in-10-years-2017-11-02)

(END) Dow Jones Newswires

November 02, 2017 09:31 ET (13:31 GMT)