Long-dated Treasury yields fell Friday while short-dated yields rose as investors added to bets that the Federal Reserve will raise rates more than the market has so far anticipated next year.
What are yields doing?
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The 10-year Treasury note yield fell to 2.344%, from 2.361% late Thursday. The 2-year note yield rose around a basis point to 1.721%,from 1.712%. The 30-year bond yield edged lower to 2.796%, versus 2.801%.
Bond prices move in the opposite direction of yields
What's driving the market?
The yield curve, a line tracing yields across maturities, has flattened as traders bought long-dated securities and sold short-dated securities on the belief that the Federal Reserve would raise rates more than investors thought. As U.S. growth gathers momentum, investors are concerned the central bank will deliver the three to four interest rates even though the inflation backdrop has been somewhat lackluster.
Part of the curve's recent flattening move has been helped by the U.S. economy notching a spree of solid economic readings this week. Industrial production notched a stellar 0.9% rise in October (http://www.marketwatch.com/story/industrial-production-surges-in-october-tops-forecast-2017-11-16), suggesting manufacturers were picking up steam. Friday's housing starts number could help add to this bullish undertone and strengthen the Federal Reserve's case for raising interest rates in December. That could give the 2-year yield impetus to travel higher.
Most investors were still keeping a steady eye on the tax bill, a key driver of the stock's market's gains and some of the bond market's losses. The House passed their version of the bill on Thursday. Treasurys, however, have remained resilient to the slow progress of the Republican plan to overhaul the U.S. tax code as market participants still held doubts about the Senate's ability to pass a comprehensive tax bill.
See: Republican Ron Johnson opposes current Senate tax bill (http://www.marketwatch.com/story/republican-ron-johnson-opposes-current-senate-tax-bill-2017-11-15)
Read: Corker worries over true cost of 'temporary' cuts in tax bill (http://www.marketwatch.com/story/corker-worries-over-true-cost-of-temporary-cuts-in-tax-bill-analyst-sees-democratic-wave-in-polls-2017-11-17)
What are analysts saying?
"The bigger test, of course, will come in the Senate, but that chamber's vote is now not likely to take place until after next week, thus giving the Finance Committee much more time to try to address various concerns about the bill," said Thierry Wizman, global interest rates and currencies strategist for the Macquarie Group.
"The curve flattening trade continues to dominate the landscape in the Treasury bond market. I certainly see very little reason for the curve to steepen," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
What's on investor's radar?
Housing starts jumped 13.7% in October (http://www.marketwatch.com/(S(rnrsydaynixa5x55oiibxm45))/story/housing-starts-booms-137-in-october-2017-11-17), or an annual rate of 1.29 million, the fastest pace in a year. Economists surveyed by MarketWatch expect it to climb to 1.2 million from a September reading of 1.127 million, which was later revised up to 1.135 million. The Kansas City Fed Manufacturing Index, a gauge of local industrial activity, will come out at 11 a.m.
San Francisco Fed President John Williams will participate in a panel discussion in Berkeley, Calif. His speech will be the last on the speaking docket that has seen a bevy of talk from central bankers on a range of topics including, the need for consensus in communicating Fed policy (http://www.marketwatch.com/story/feds-yellen-its-confusing-with-so-many-voices-on-the-fomc-2017-11-14), raising the inflation target and whether low-interest rates was fanning asset bubbles (http://www.marketwatch.com/story/harvard-economist-feldstein-sees-greater-chance-stocks-will-plunge-2017-11-16).
(END) Dow Jones Newswires
November 17, 2017 09:45 ET (14:45 GMT)