U.S. Government Bonds Strengthen to Start Busy Week

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds edged higher Monday, holding to a tight range as traders prepared for a busy week of bond auctions, economic data and possible progress on tax cuts.

Continue Reading Below

The yield on the benchmark 10-year Treasury note settled at 2.328%, compared with 2.342% Friday. Yields fall when bond prices rise.

The 10-year yield has hovered around 2.35% for much of the past two months, even as yields on shorter-term Treasurys have climbed steadily higher.

Auctions of two-year and five-year notes didn't do much to alter recent trends on Monday, attracting average demand. A sale of seven-year notes is on tap for Tuesday.

Later in the week, the Commerce Department will release its latest report on the price index for personal-consumption expenditures, the Federal Reserve's preferred inflation gauge, while the Senate nears a vote on major tax cut legislation.

Investors and analysts have pointed to several factors behind the shrinking gap between short and long-term Treasury yields, known on Wall Street as a flattening yield curve. One, the expectation that inflation will stay below the Fed's 2% target, has kept a lid on longer-term Treasury yields. Another, signs that the Fed will keep raising interest rates, has helped depress demand for shorter-term bonds, pushing yields higher.

Continue Reading Below

The gap between two-year and 10-year Treasury yields ended up at 0.584 percentage point Monday, down from 0.782 percentage point at the end of October.

"You look at the spread levels and you're like, wow, this is getting really flat," said Thomas Simons, senior vice president and money-market economist in the Fixed Income Group at Jefferies LLC. "You figure it can't continue indefinitely, but then you do come up with more reasons for why it should continue."

Some investors and analysts believe that long-term Treasury yields could rise if Congress passes tax cuts, in part because it would force the government to increase bond issuance. So far, however, the prospect of tax legislation has had little effect on the market.

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

(END) Dow Jones Newswires

November 27, 2017 15:39 ET (20:39 GMT)