BOND REPORT: Treasury Prices Lifted By Flight To Quality Amid Stock Slump And Commodity Weakness

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

The S&P 500 fell for a second straight day

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U.S. Treasury prices rose on Wednesday, driving yields lower, as investors rotated into assets perceived as safe like U.S. government paper and away from stocks amid a dip in commodity prices.

What are yields doing?

The benchmark 10-year note yield gave up 4.6 basis points to 2.335% from 2.381%. The 30-year Treasury yield, known as the long bond, slipped 4.6 basis points at 2.782%, versus 2.839% in the previous session.

The 2-year Treasury note yield , the most sensitive to shifting yield expectations, was mostly unchanged, compared with 1.689% late Tuesday in New York.

Bond prices moves inversely to yields.

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What's driving Treasurys?

The stock market has been under pressure with the Dow Jones Industrial Average and the S&P 500 index declining (http://www.marketwatch.com/story/dow-futures-tumble-more-than-100-points-as-mood-for-risk-sours-2017-11-15)for a second straight session, luring bidding in assets perceived as havens like government paper. Concerns that excessive leverage on companies' balance sheets helped to weigh on other risky assets like high-yield debt.

See: Bloated company balance sheets signal trouble for stock market's record run (http://www.marketwatch.com/story/bloated-company-balance-sheets-signal-trouble-for-stock-markets-record-run-2017-11-14)

Falling crude-oil prices have helped to stoke weakness in the broader commodity complex, underscoring nagging questions about inflation returning to the Federal Reserve's 2% annual target. Sluggish levels of inflation and wage growth have weighed on longer-dated Treasurys, more influenced by the inflation outlook, because rising prices can chip away at a bonds fixed value.

Against that backdrop, the consumer price index rose 0.1% in October, but stripping out for food and energy prices, core CPI rose 0.2% (http://www.marketwatch.com/story/core-cpi-picks-up-in-october-2017-11-15). That was above MarketWatch's median forecast of a flat reading.

Wall Street is pricing in a near certain chance of a rate increase when the Fed policy makers next meeting at their Dec. 12-13 gathering, according to CME Group data (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/).

What are strategists saying?

"The market's response to this morning's solid inflation and retail sales numbers was rather telling. Bullish price action following bond-bearish data indicates that the focus has shifted decidedly in favor of the vulnerability of risk assets," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.

"The data will help the case of Fed officials arguing that the recent slowing in core inflation was due in large part to "idiosyncratic" rather than secular forces. They report raises the already high probability that officials will raise rates again at next month's meeting," said Jim O' Sullivan, chief U.S. economist for High Frequency Economics.

What else is on investors' radar?

Retail sales for October rose 0.2% in October (http://www.marketwatch.com/story/us-retail-sales-rise-modestly-in-october-after-surge-in-prior-month-2017-11-15), higher than the economists' projections for it to stay unchanged. Business inventories was unchanged in September, but sales climbed 1.4 percent. As firms go through the outstanding supply left in warehouses and storage facilities, the need to rebuild stock could help strengthen future growth.

Chicago Fed President Charles Evans said inflation has been too low for too long and the U.S. central bank has to alter its communications with the markets to convince investors the central bank is willing to let it run hotter than the 2% target (http://www.marketwatch.com/story/fed-should-convince-markets-it-would-tolerate-inflation-at-25-evans-says-2017-11-15). The Fed member, who is a voter of the policy-making Federal Open Market Committee, was speaking in London.

Boston Fed President Eric Rosengren speaking at Northeastern University's economic policy forum in Boston said he supported gradual increases to rates

How are other assets doing?

West Texas Intermediate crude , the U.S. benchmark, has fallen 2.6% to $55.10 a barrel so far this week. Oil futures sometimes serve as a proxy for short-term inflation expectations, nudging yields lower as futures fall, decreasing expectations for higher prices.

European bond yields followed Treasurys lower. The German 10-year government bond yield fell 2.7 basis points to 0.372%. The U.K. 10-year government bond yield slipped 4.3 basis points to 1.282%.

(END) Dow Jones Newswires

November 15, 2017 16:16 ET (21:16 GMT)