Treasurys Extend Recent Gains

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds strengthened Monday, picking up where they left off last week as investors continued to reassess assumptions that led them to sell bonds for much of the previous two months.

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In recent trading, the yield on the benchmark 10-year Treasury note was 2.329%, according to Tradeweb, compared with 2.343% Friday.

Yields, which fall when bond prices rise, have been on a steady retreat since the 10-year yield came close to reaching 2.5% near the end of October.

Among the factors behind the move: President Donald Trump nominated Federal Reserve Board governor Jerome Powell to be the next Fed chairman. Among the potential candidates to replace Fed Chairwoman Janet Yellen, Mr. Powell was seen as the least likely to shift to a more aggressive pace of interest-rate increases.

Prices of 10-year notes also have been supported by signals from the Treasury Department that it would meet additional borrowing needs largely through sales of short-term debt, keeping the weighted average maturity of outstanding debt at around current levels. Some investors had expected more issuance of long-term debt, possibly including new ultralong bonds such as those with 50-year maturities.

Recent developments have shown that a long-term move higher in rates "is going to be quite a bit more choppy than just a straight line," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

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While investors had sold bonds in recent months partly out of the expectation that Congress would pass deficit-expanding tax cuts, they have turned more skeptical recently as lawmakers have taken steps to advance a bill, and it became evident that it would face significant political obstacles, Mr. Goldberg said.

Meanwhile, short-term bond yields continue to rise. In recent trading, the yield on the two-year note was 1.625%, compared with 1.624% Friday and 1.592% on Oct. 31.

Despite adjusting their expectations on other issues, investors still expect the Fed to raise interest rates in December, a move that typically has a larger negative impact on shorter-term Treasurys than longer-term bonds.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, showed Monday morning a 100% chance that the central bank will raise rates at its December meeting, according to CME Group data, up from 93% a week ago.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

November 06, 2017 11:19 ET (16:19 GMT)