U.S. Government Bonds Decline as Agreement Ending Shutdown Reached

By FeaturesDow Jones Newswires

U.S. government bonds weakened Monday after the Senate reached an agreement to end the government shutdown.

The yield on the benchmark 10-year U.S. Treasury note rose for a fourth consecutive day to 2.663%, its highest closing level since April 2014 and up from 2.639% Friday. Yields rise as bond prices fall.

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Yields rose after the Senate advanced a bill that would reopen the federal government after the brief shutdown and fund operations for three weeks.

Many investors had been skeptical that the shutdown would have a significant impact on financial markets.

"They're just going to kick the can a little bit further down the road," said Luis Maizel, a bond manager at LM Capital Group. "Nobody expected this to last."

Government bond yields have climbed this year, with investors betting on an acceleration in growth and inflation. Inflation is a threat to the value of the a bond's fixed interest payments as it chips away at their future purchasing power.

The persistent pace of growth has made helped the Federal Reserve move closer toward its goal of returning monetary policy to precrisis norms. Policy makers raised interest rates three times in 2017, and have signaled their intention to increase them three more times this year.

Investors are also watching whether the two parties will engage in similar brinkmanship with the issue of increasing the government's statutory borrowing limit, an issue analysts expect to come to a head in early March.

That could be a more "serious" problem for investors, as failure to raise the debt ceiling could lead to an interruption of principal and interest payments by the government, said Aaron Kohli, an interest-rate strategy at BMO Capital Markets.

Monday's yield gains came as the government is scheduled to sell $103 billion of notes this week, with offerings of two-, five- and seven-year notes, as well as floating-rate notes.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

January 22, 2018 16:49 ET (21:49 GMT)

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