BOND REPORT: Treasury Yields Slip As Government Bonds Catch Haven Bids In Stock Slump

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

U.S. Treasury prices rose on Wednesday, driving yields lower, as global stocks sink amid a rout in commodity prices, casting fresh doubt about consumer prices and inflation returning to levels considered normal.

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What are yields doing?

The 2-year Treasury note yield , the most sensitive to shifting yield expectations, was off 1.8 basis points at 1.671%, compared with 1.689% late Tuesday in New York. The benchmark 10-year note yield gave up 4.1 basis points to 2.340% from 2.381%. The 30-year Treasury yield, known as the long bond, was off 0.4 basis point at 2.799%, versus 2.839% in the previous session.

Bond prices moves inversely to yields.

What's driving Treasurys?

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.

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West Texas Intermediate crude , the U.S. benchmark, has fallen nearly 3% to $55.08 a barrel so far this week. Oil futures sometimes serve as a proxy for short-term inflation expectations, nudging yields lower as futures fall and decreasing expectations for higher prices.

Looking ahead, investors are awaiting further measures of inflation. The consumer-price index, one closely watched measure of inflation is due at 8:30 a.m. Eastern Time, with economists polled by MarketWatch forecasting core prices for October to rise 0.1% and core prices to increase 0.2%.

Separately, House Speaker Paul Ryan is expected to appear on CNBC where he will likely discuss Republican efforts to overhaul the U.S. tax code, which has been a key driver for bond-market moves in recent trade.

Meanwhile, the stock market has been under pressure with the Dow Jones Industrial Average and the S&P 500 index set to come under pressure (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.

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?

"Core inflation has surprised to the downside in six out of the last seven readings (with the seventh just matching expectations). While negative surprises are becoming no surprise, evidence shows that over the last seven months, 10-year U.S. yields have tended to decline on the day the data is published, although the yield decline is a modest 3 [basis points] on average," wrote economists at UniCredit led by Chiara Silvestre.

"Another weak reading is therefore likely to be somewhat supportive of the long end. It could also lead to some questions regarding the expected December rate hike, although we think that the bar for the Fed not to act then is very high," UniCredit economists said.

What else is on investors' radar?

Retail sales for October are also expected at 8:30 a.m. Eastern and the Empire State manufacturing index for November also is slated for the same time. Later Wednesday, a reading on business inventories are set to be released at 10 a.m.

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 voting member of the Federal Open Market Committee, was speaking in London.

Boston Fed President Eric Rosengren is slated to give a speech at Northeastern University's economic policy forum in Boston at 4:10 p.m. Eastern.

(END) Dow Jones Newswires

November 15, 2017 08:27 ET (13:27 GMT)