BOND REPORT: Treasury Yields Edge Lower As Heath-care Bill Looks Uncertain
30-year Treasury hovering around lowest yield in seven months
Treasury yields fell slightly in Thursday trade after a Republican Senate bill to overhaul health care faced internal opposition, showing discord within the party could hold back President Donald Trump's pro-growth agenda.
The yield on the 10-year Treasury note fell 0.4 basis points to 2.153%, but largely held its level from late Wednesday in North American trade. Bond prices and yields move in the opposite direction. The two-year note ticked down 0.8 basis points to 1.344%. The 30-year bond, sensitive to inflation expectations, was little changed at 2.724%, but still the lowest since Nov. 8.
The yield move came after the Republicans released a health-care bill that has had difficulty in securing unanimous support within the party, without which pundits say it is unlikely to pass. Resistance to the legislation has emerged from elements of the party that feel the bill is watered-down and keeps too much of Obamacare's existing provisions intact.
The latest blow to Trump's plans to repeal and replace the Affordable Care Act have confirmed to market participants the sagging realities of passing legislation with a tenuous and split Republican majority in Congress. But Trump himself has been unwilling to give a clear endorsement to the bill, suggesting the House version was too "mean."
"Today's release of the 'draft' version of the health-care bill has done little to change our view on how long comprehensive reforms are likely to take," said Charlie Ripley, fixed income strategist for Allianz Investment Management.
For the week, the short-term two-year Treasury note was up 2.5 basis points, the 10-year benchmark note was near break-even, while the long bond, or 30-year Treasury, was 5.8 basis points lower, touching a fresh seven-month nadir in Wednesday trade (http://www.marketwatch.com/story/treasury-yields-travel-higher-ahead-of-key-housing-number-2017-06-21).
Lower yields on the longer end of the bond curve may suggest that investors anticipate a weaker economic outlook. The flattened so-called yield curve has come amid diminished inflation expectations, which can erode the value of a bond's fixed payment. Falling crude-oil prices, with U.S. oil entering a bear market -- defined as a decline of at least 20% from a recent peak -- also have amplified expectations that consumer prices won't be substantially higher in the near term. Crude prices on Thursday, however, rebounded somewhat (http://www.marketwatch.com/story/oil-steady-but-jump-in-us-supplies-keeps-traders-on-edge-2017-06-22).
The five-year-forward inflation expectation rate (https://fred.stlouisfed.org/series/T5YIFR), the bond market's assessment of future price growth, has fallen most recently to 1.78% after hovering above 2% for most of the first quarter.
Last week, the Fed raised short-term interest rates for the fourth time since December 2015 and has signaled one more rate increase by the end of the year. Fed speakers have acknowledged slack in the economy but have communicated a desire to lift rates. The central bank and its officials, including Chairwoman Janet Yellen, have suggested inflation should eventually pick up, citing weaker data as a "one-off" as a tightening labor market leads to higher wages.
On that front, a weekly employment reading on Thursday showed that fewer than 250,000 Americans applied for unemployment benefits in mid-June (http://www.marketwatch.com/story/us-jobless-claims-edge-up-3000-to-24100-2017-06-22), underscoring the strength of a U.S. jobs market, but not significantly shifting bond-market sentiment.
Still, investors have been picking up U.S. government paper rather than dumping bonds in anticipation of higher yields in the future, as is typical in a so-called rate-tightening cycle.
That bond buying comes against the backdrop of U.S. equities, including the S&P 500 index and the Dow Jones Industrial Average, trading near records. Traditionally, bond prices and stock values maintain an inverse relationship.
In Europe, the benchmark 10-year German bond, known as the bund, was yielding 0.25%.
(END) Dow Jones Newswires
June 22, 2017 16:53 ET (20:53 GMT)