10-year Treasury yields edge up from 7-month low
Treasury yields rose Friday as bond investors put several potentially market-moving events in the rearview mirror and began to look ahead to next week's auctions of government paper and a meeting of Federal Reserve policy makers.
The yield on the 2-year note, which is sensitive to Fed policy, gained 1.6 basis point to 1.338%, adding to this week's rise of 4.9 basis points, the largest since April 28. Bond prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.
The yield on the 10-year Treasury note added 0.5 basis points to 2.201%, contributing to the weekly gains of 4.1 basis points. Earlier in the week, the yield had fallen to its lowest level since Nov. 10. The yield on the 30-year bond, or the long bond, stayed relatively unchanged at 2.855%.
U.S. bond yields climbed in morning trading after traders parked in Treasurys seeking shelter ahead of Thursday's events, including Senate testimony by former Federal Bureau of Investigation chief James Come, the U.K. election, and a meeting of European Central Bank policy makers.
"Most of the increase came about from the passing of the Comey testimony without fatal or near fatal outcomes" for the Trump administration, said Richard Gilhooly, head of rates strategy at CIBC Capital Markets. "The premium is still going to remain with the impeachment risk. It was marked upwards coming into this week, the risk being marked down subsequently after [his testimony]."
See: Here are the key takeaways from Comey's testimony (http://www.marketwatch.com/story/here-are-the-key-takeaways-from-comeys-testimony-2017-06-08)
Attention also turned to next week's $84 billion of Treasury auctions and a Fed policy meeting, which is widely expected to deliver a rate increase.
But yields pared back their gains later in the day as bond investors say they remain troubled by weaker-than-expected economic data, which could prompt Fed officials to push back the date of the third rate hike of the year.
"Well a lot of what has been depressing Treasury yields other than risk events is the softening in the cyclical economic data, namely on the inflation side of things. I don't think anyone will be surprised if the Fed pauses in September. They're not going to hammer home with what they're going to do with the balance sheet, until we see the cyclical data rebound a bit," said Jason Celente, senior portfolio manager at Insight Investment.
Benchmark U.K. bond yields fell Friday as investors sought the relative certainty of government bonds in the wake of the election upset that denied the ruling Conservative party the stronger majority it sought to strengthen its position in coming negotiations with the European Union to exit from the trading bloc. But the flight-to-quality sentiment didn't spread to U.S. bonds, which had already hit a seven-month low this week.
Theresa May's Tories were at one time projected to secure 400-plus seats but instead came up short of the 326 seats needed for a majority in Parliament. May was reportedly working to secure a coalition with Northern Ireland's DUP (http://www.marketwatch.com/story/uks-may-turns-to-northern-irish-party-dup-to-form-government-after-election-rebuke-2017-06-09) to earn enough votes to govern.
"The U.K election is being seen very optimistically as a soft Brexit outcome," said Gilhooly.
The election result spurred buying of British bonds after investors saw May's weakened mandate leading her to tone down her euroskeptic stance as the U.K. looks to exit from the economic bloc.
See: After U.K. election shocker, Brexit itself looks 'surely in trouble now' (http://www.marketwatch.com/story/after-uk-election-shocker-brexit-itself-looks-surely-in-trouble-now-2017-06-09)
British 10-year gilt yields dipped 3 basis to 1.004%, having earlier fallen a touch below 1% as election results pointed to May's shortfall. But sterling hit a seven-week low (http://www.marketwatch.com/story/pound-tumbles-to-7-week-low-as-uk-exit-poll-points-to-hung-parliament-2017-06-08) and was down some 1.7% against the dollar in the morning, but retraced its losses later in the day.
(END) Dow Jones Newswires
June 09, 2017 17:09 ET (21:09 GMT)