BOND REPORT: 10-year Yield Establishes Perch Above 2.40% With Trump Set To Choose Fed Boss

Trump reportedly leans toward Powell as the next Fed chief

U.S. Treasury prices ended weaker for the week, pulling yields higher overall, after growing anticipation for a tax overhaul and continued speculation over who will lead the Federal Reserve when Chairwoman Janet Yellen's term ends in February.

But yields fell on Friday amid rising political tensions in Spain and a news report indicating that President Donald Trump is leaning toward choosing Fed Gov. Jerome Powell as the next head of the U.S. central bank. The White House said Trump will make a decision next week (http://www.marketwatch.com/story/trump-to-announce-fed-pick-next-week-white-houses-sanders-says-2017-10-27) (http://www.marketwatch.com/story/trump-to-announce-fed-pick-next-week-white-houses-sanders-says-2017-10-27).

What did yields do?

The yield on the 10-year Treasury note fell 2.5 basis points on the day to 2.426%, but notched a weeklong climb of 4.6 basis points. It broke above 2.40% this week and hit a seven-month high on Thursday.

The 2-year Treasury yield shed 1.8 basis points to 1.60%, but rose 2 basis points for the week.

The 30-year Treasury bond yield ticked down 2.4 basis points, yet posted a rise of 4.3 basis points for the week.

Bond prices move inversely to yields.

What's driving the market?

A news report said Trump was favoring Powell as the next Fed chief. Investors continue to weigh the prospect of a replacement for Fed Chairwoman Janet Yellen, whose term ends in February and who appears to be out of the running for the top spot. Front-runners are said to be Stanford economist John Taylor, who is seen as likely to take a hawkish approach and Powell, who is viewed as a monetary dove and similar to Yellen.

See: Trump leaning toward appointing Powell to Fed: report (http://www.marketwatch.com/story/trump-leaning-toward-appointing-powell-to-fed-report-2017-10-27)

Read: What a Jerome Powell-led Fed might look like (http://www.marketwatch.com/story/imagining-life-under-a-jerome-powell-fed-2017-10-20)

The Republicans have made strides with their tax plans. The House passed the Senate's budget blueprint (http://www.marketwatch.com/story/house-narrowly-passes-budget-in-critical-step-for-republicans-tax-plan-2017-10-26), an important step in passing tax cuts, which could worsen the budget deficit. A rise in fiscal deficits will necessitate the Treasury Department to unload new government debt onto the market, potentially weighing on prices.

What are strategist saying?

"The Treasury market is shrugging off the data and is focusing primarily on Fed chair appointment where rumors continue to be that Powell will get appointed. He is less hawkish than other names that have surfaced hence the bid in the market," wrote Tom di Galoma, managing director of Treasurys trading for Seaport Global Securities.

The bid in the "Treasurys market has to be seen in the broader context. We established a new level on the 2.40%. This has been a weak price, higher yield period. There's been strong evidence of a solid economic trajectory this week," said Bill Northey, chief investment officer at U.S. Bank Private Client Group.

What else is on radar of investors?

The first read of third-quarter gross domestic product showed annualized growth of 3% (http://www.marketwatch.com/story/economy-grows-at-3-rate-in-third-quarter-despite-negative-impact-from-hurricanes-2017-10-27), outpacing the median forecast of 2.4% produced by a MarketWatch survey of analysts. Much of this rise was driven by business investment and growth in inventories, which contributed 0.7% to the number alone. That was a source of concern to some as inventories can either suggest heightened optimism among businesses or that firms were having difficulty off-loading their merchandise.

It represents the last major piece of economic data before the Federal Reserve's policy-setting meeting next week. Investors anticipate the data will give the central bank assurance that the world's largest economy could withstand one more increase to rates at its December meeting. Traders at the fed-futures market priced in a 96.7% chance of a rate increase, CME Group data show (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/).

Read: Fed statement may have treats for the hawks and the doves (http://www.marketwatch.com/story/fed-statement-may-have-treats-for-both-hawks-and-doves-2017-10-27)

Which other assets are moving?

Tensions escalated after the Catalan Parliament voted to declare independence from Spain, drawing investors into assets perceived as safe like U.S. government paper and Japanese yen. Spanish 10-year bond yields hit an intraday high of 1.615%, before coming down to 1.580%.

Global stocks rose, with the S&P 500 index and the Nasdaq Composite Index closing at all-time highs on the back of a solid round of quarterly earnings from some of the U.S.'s biggest technology companies (http://www.marketwatch.com/story/amazon-google-microsoft-and-intel-find-billions-more-in-profit-2017-10-26).

(END) Dow Jones Newswires

October 27, 2017 17:16 ET (21:16 GMT)