BOND REPORT: U.S. 10-year Yield Tops 2.6% For First Time Since March

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Market is keeping tabs on Washington, where the possibility of a partial government shutdown looms

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The yield on 10-year U.S. government paper on Thursday jumped above 2.6% for the first time since March after the Federal Reserve's Beige Book, out the previous afternoon, pointed to a tighter labor market.

What are yields doing?

The yield on the benchmark 10-year U.S. Treasury note rose 1.5 basis point to 2.6047%, trading around its highest level since mid-March, according to FactSet data. The yield reached an intraday high of 2.6158%.

The yield on the 2-year note slipped 0.8 basis point to 2.0439%, while the rate on the 30-year bond climbed 1.9 basis point to 2.8759%.

Yields and prices move in opposite directions.

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What's driving the market?

Thursday's move was a continuation of the mood late in Wednesday's session ( after the Fed's so-called Beige Book, a roundup of economic anecdotes gathered by regional Fed banks, painted a portrait of a mostly robust U.S. economy.

The report also noted that most districts are starting to see "ongoing labor market tightness," a factor that could lead to a rise in wages and inflation. Higher inflation could accelerate the Fed's rate hikes in 2018, which in theory would be supportive for U.S. yields.

Additionally, analysts said speculation that U.S. companies will repatriate earnings kept abroad was pushing yields higher. That means companies would have to liquidate their investments by selling Treasurys, which in turn would send yields higher.

Traders also kept an eye on Washington, where the possibility of a partial government shutdown kept lawmakers busy. The current stopgap funding bill that was passed on Dec. 21 expires on Saturday and the White House and Congress have yet to reach a deal on extending it. Lawmakers have been trying to hammer out an agreement on immigration, which is seen as crucial to breaking the deadlock and keeping the government open.

What are analysts saying?

Yields are "pushing higher as markets started to price in a faster face of prospective rate rises, with both Charles Evans of the Chicago Fed and Robert Kaplan of the Dallas Fed painting a positive outlook for the U.S. economy, with the prospect of three rate rises this year as a base-case scenario," said Michael Hewson, chief market analyst at CMC Markets UK, in a note.

What else is on investors' radar?

Economic data reports scheduled for release Thursday include updates on weekly jobless claims, housing starts and building permits, all due at 8:30 a.m. Eastern. The Philly Fed manufacturing index for January is expected at 10 a.m. Eastern.

(END) Dow Jones Newswires

January 18, 2018 06:39 ET (11:39 GMT)