Treasurys Slide as Investors Shift Back to Riskier Assets -- Update

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bond prices fell Thursday, retracing a portion of their recent gains as investors recovered some appetite for riskier assets.

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The yield on the benchmark 10-year Treasury note settled at 2.361%, compared with 2.335% Wednesday.

Yields, which rise as bond prices fall, climbed overnight as global stocks gained, a reversal of their moves over the previous two sessions.

Stocks have fallen in recent days along with other riskier assets, such as junk-rated corporate debt, in what some analysts have characterized as a bout of profit-taking following lengthy rallies. That has boosted Treasurys, which are seen as safe by investors because of their fixed interest payments and backing by the world's largest economy.

As stock indexes rose Thursday, prices on many junk bonds also ticked higher in a sign that many investors are still fairly sanguine about asset valuations at a time when major economies remain in growth-mode.

One junk bond that has come under especially heavy pressure in recent weeks, an 11% bond due 2025 issued by Frontier Communications Corp., traded Thursday at around 78 cents on the dollar, up from 75.75 cents on Wednesday, according to MarketAxess.

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Recent economic data has continued to provide "a healthy, constructive backdrop" both for risky assets to thrive and for the Federal Reserve to raise interest rates, said John Herrmann, rates strategist at MUFG Securities in New York.

While soft inflation has helped support Treasurys this year, many analysts believe it is still on a path to the Fed's 2% target.

Data released Wednesday showed that the consumer-price index advanced 0.1% in October from a month earlier. But so-called core prices, which exclude volatile food and energy costs, rose 0.2% from September and 1.8% from a year earlier, marking its strongest annual gain since April.

Rising inflation tends to weigh on government bonds by chipping away at the purchasing power of their fixed payments, while efforts by the Fed to keep inflation in check through interest-rate increases can also hurt Treasurys.

Reacting to signals from Fed officials, investors have been dialing up their expectations for interest-rate increases in the coming months. That has pushed up yields on shorter-term government bonds, which are especially sensitive to changes in monetary policy.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, showed late Thursday a 100% chance that the central bank will raise rates at its December meeting, according to CME Group data. The odds of at least two interest-rate increases by the Fed's meeting next June was recently 75%, up from 64% a week ago.

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

(END) Dow Jones Newswires

November 16, 2017 16:50 ET (21:50 GMT)