BOND REPORT: Treasury Yields Rise As Stocks Bounce As Flight-to-quality Reverses

By William Watts, MarketWatch Features Dow Jones Newswires

Curve flattening pauses but still perplexes participants

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Treasurys pulled back Thursday, pushing up yields as a global equity bounce dampened appetite for haven assets like U.S. government debt amid solid economic data.

What are yields doing?

The yield on the benchmark 10-year Treasury note rose a basis point to 2.345%, while the yield on the 30-year Treasury bond was unchanged at 2.783%.

The 2-year yield rose 2.5 basis points to 1.704%, another fresh 10-year high. The shorter-dated Treasury has notched a spree of records since early September.

Yields rise as bond prices fall.

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What's driving the market?

Yields were on the rise amid a firmer tone in global equity markets, with U.S. stock-index futures pointing to a bounce (http://www.marketwatch.com/story/us-stocks-on-track-to-bounce-back-after-dows-138-point-drop-2017-11-16) on Wall Street a day after the Dow Jones Industrial Average posted a 138-point drop. Weakness in global equities had spurred demand for haven assets like Treasurys. Stocks have been driven in part by progress, or lack thereof, on U.S. tax-cut legislation.

The yield curve, a line that plots yields across all maturities, steepened modestly Thursday but has been in flattening mode for weeks, with yields at the short end rising in anticipation of Federal Reserve rate increases, while a dearth of inflation has been cited as a potential reason for pressure on longer-dated yields.

The spread between 2- and 10-year yields, a key measure of the curve, hit a decade low of 63 basis points, or 0.63 percentage point, on Wednesday, noted Hussein Sayed, chief market strategist at FXTM, while the spread between 5- and 10-year yields fell below 30 basis points for the first time since 2007.

What are analysts saying?

"The last two days, interest rates have been predictably tied to stocks. Key word = predictable," wrote Jim Vogel, analyst at FTN Financial, in a note. "The process of cutting taxes within a budget is anything but smooth, so there's reassurance in the rhythm of Treasury movements this week."

What's on the economic calendar?

Industrial production climbed 0.9% in October (http://www.marketwatch.com/story/industrial-production-surges-in-october-tops-forecast-2017-11-16). Economists polled by MarketWatch had forecast a 0.6% gain. In the same month, import prices rose 0.2% (http://www.marketwatch.com/story/price-surge-in-imported-goods-slows-in-october-2017-11-16). Weekly jobless claims rose 10,000 to 249,000 for the week ending Nov. 11, a six-week high (http://www.marketwatch.com/story/us-jobless-claims-jump-to-6-week-high-2017-11-16).

On the speaker circuit, Cleveland Fed President Loretta Mester said with inflation moving in the right direction, the central bank should stick to a gradual rate hike path.

Dallas Fed President Rob Kaplan takes part in a discussion at a CFA Society of Houston event at 1:10 p.m. Eastern. Fed Gov. Lael Brainard is due to speak at a University of Michigan Law School conference at 3:45 p.m. Eastern, while San Francisco Fed President John Williams addresses a forum on Asia at 4:45 p.m. Eastern.

What are other assets doing?

All three major U.S. equity indexes notched gains after two straight days of losses. The Dow Jones Industrial Average and the Nasdaq Composite Index both rose more than 0.5%. The Japanese Nikkei Stock Average was up by 1.5%.

(END) Dow Jones Newswires

November 16, 2017 10:26 ET (15:26 GMT)