BOND REPORT: Treasury Yields Nudge Higher As Government Shutdown Continues

By FeaturesDow Jones Newswires

The selloff in U.S. Treasurys slowed on Monday, with yields flat to a shad e higher, after the government entered the third day of its shutdown and investors awaited fresh developments.

What are Treasurys doing?

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The yield for the 10-year benchmark Treasury note was up 0.7 basis point to 2.646%. The 2-year note yield was up 1.2 basis point to 2.073%, while the 30-year bond yield was flat at 2.912%.

Bond prices move in the opposite direction of yields.

What's driving Treasurys?

Investors say the government shutdown is likely to prove short-lived, but acrimony in Congress could prevent a speedy resolution to the negotiations. Though the shutdown has had minimal impact on the economy and financial markets, investors say the deadlock could see delays in the release of key economic data. Market participants will eye fourth quarter GDP data on Friday, but as nonessential workers remain furloughed, the report may be held up.

See: Traders lack 'an appetite to take action' as shutdown runs on--analysts react to impasse (http://www.marketwatch.com/story/traders-lack-an-appetite-to-take-action-as-shutdown-runs-on-analysts-react-to-impasse-2018-01-22)

The Bank of Japan is holding its two-day policy meeting this week, while the European Central Bank is set to begin their get-together on Thursday. In the backdrop of strengthening economic conditions, investors have raised the outlook for the central banks to tweak their policy guidance in preparation for a shift away from years of ultraloose monetary policy. Low interest rates elsewhere have kept U.S. bond yields depressed as foreign investors have plowed cash into the U.S. to snap up positive-yielding assets.

Read: BOJ and ECB expectations have trader hopes riding high for the yen and the euro (http://www.marketwatch.com/story/boj-and-ecb-expectations-have-trader-hopes-riding-high-for-the-yen-and-the-euro-2018-01-19)

What did market participants say?

"The immediate economic effects of a shutdown are not material in that they won't necessarily change the broader economic trajectory and much of the cuts that come into place will be replaced with additional spending later. That's not a guarantee, but very likely to be the case nonetheless as political pressures will build on both parties to lessen whatever economic pressures result from this event," said Aaron Kohli, interest-rates strategist for BMO Capital Markets, in a note.

"The unprecedented nature of the current shutdown (i.e. one party control) and polarization of the two political parties makes it difficult to handicap when a resolution will materialize," said strategists at Bank of America Merrill Lynch.

What's on investors' radar?

The Senate will hold a confirmation hearing for Marvin Goodfriend as governor of the Federal Reserve Board. He is a known critic of the central bank's bond-buying, but has shown an appetite for unconventional monetary policy such as the use of negative interest rates (https://www.kansascityfed.org//media/files/publicat/sympos/2016/econsymposium-goodfriend-paper.pdf?la=en).

(END) Dow Jones Newswires

January 22, 2018 09:29 ET (14:29 GMT)

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