BOND REPORT: 10-year Treasury Briefly Hits Highest Since April 2014
10-year Treasury note yield hits a intraday peak of 2.727%
The yield on the 10-year Treasury note touched 2.7% on Monday, extending a relentless climb in yields for U.S. government paper on expectations of increased interest rates, an upbeat economic outlook and anticipation of greater issuance of government bonds.
How are Treasurys performing?
The yield on the 10-year Treasury note rose 3.4 basis points to 2.695%, its highest since April 2014 (http://www.marketwatch.com/story/us-10-year-yield-jumps-above-27-to-highest-level-since-2014-2018-01-29), according to WSJ Market Data Group. The benchmark note's yield rose as high as 2.727%.
The 2-year note yield was flat at 2.122%, while the 30-year bond yield rose 2.9 basis points to 2.940%, nearing the psychologically significant level at 3% for the long bond.
Bond prices move inversely to yields.
What are driving markets?
The rise in yields, highlighting ongoing selling of U.S. bonds, comes after a Friday report on gross domestic product showed that the U.S. expanded at a 2.6% annual pace (http://www.marketwatch.com/story/us-economy-grows-26-in-fourth-quarter-gdp-shows-2018-01-26) in the fourth quarter, extending one of the best stretches of growth during the current eight-and-a-half-year-old upturn. Although, the preliminary reading fell slightly short of expectations for 3%, it signaled that the domestic economy remains solid and raised the outlook for the Federal Reserve to indicate a more aggressive trajectory for future rate increases.
But the rally later stalled after an inflation reading showed price pressures were muted. The PCE index, the Fed's preferred inflation gauge, edged up 0.1% in December, but didn't climb high enough to prevent the rate of inflation over the past 12 months from slipping to 1.7% from 1.8%.
Looking ahead, investors are awaiting the State of the Union address (http://www.marketwatch.com/story/trump-today-president-says-state-of-the-union-will-cover-immigration-and-trade-2018-01-29)from President Donald Trump on Tuesday, the Fed's updated policy statement on Wednesday and January read of nonfarm payrolls on Friday.
Read: What time is Trump's State of the Union address? (http://www.marketwatch.com/story/what-time-is-trumps-state-of-the-union-address-2018-01-25)
Market participants are also keeping on eye on the debt-ceiling conflict. The concern is that Congress could see a repeat of a legislative logjam seen during the three-day, partial government shutdown. Lawmakers will next review the government's debt limit Feb. 8.
What are strategists saying?
"Bond investors' are bracing for an upgraded view on the economy and the risk of the Fed accelerating their pace of rate increases," said Bryce Doty, senior portfolio manager for SIT Fixed Income Advisors.
"We "may" be headed back to the 3.00% level now. Just a head's up. The coming Treasury supply may be driving this backup. Fear of Ms. Yellen's final comments may also be in play," said Mark Grant, chief global strategist for B. Riley FBR Inc., referring to the end of Fed Chairwoman Janet Yellen's term on Feb. 3.
What else was on investors' radar?
The savings rate fell to 2.4% in December (http://www.marketwatch.com/story/why-the-savings-rate-falling-to-a-12-year-low-is-not-a-death-knell-for-the-us-economy-2018-01-29), the lowest since 2005. Analyst say low savings rates could be bearish for bonds as investors have less cash to plow into Treasurys.
Wall Street is anticipating the Treasury Department's quarterly refunding announcement on Wednesday, where investors will see a more detailed breakdown of upcoming auctions for U.S. government paper. On Monday, the Department said it would borrow $441 billion (http://www.marketwatch.com/story/treasury-expects-to-borrow-441-billion-in-first-quarter-2018-01-29)from January to March.
Which assets are on the move?
The yield for the German 5-year government bond rose above zero for the first time since Sep. 2015.
(END) Dow Jones Newswires
January 29, 2018 17:32 ET (22:32 GMT)