BOND REPORT: Treasury Yields Fall As Investors Look Ahead To Central Bank Meetings
10-year benchmark Treasury on track to slip below 2.30%
Treasury yields declined Monday, extending a fall spurred last week as dovish speeches by Federal Reserve officials and tepid inflation figures stoked buying interest in U.S. government paper.
The 10-year Treasury yield fell 1.3 basis points to 2.321%. The yield on the 2-year note declined 2.4 basis points to 1.344%, while the 30-year yield fell 1 basis point to 2.912%. Bond prices move inversely to yields.
Treasury yields continued to act on last week's testimony from Fed Chairwoman Janet Yellen. Market participants interpreted that she held concerns that weak inflation could delay the schedule for a more aggressive pace of rate hikes. This newfound caution after repeating the mantra that weakness in economic data was transitory in previous comments spurred bond-buying.
There will be no Fed speakers this week as the central bank heads into its blackout period before its July 25-26 gathering.
Elsewhere, the European Central Bank and the Bank of Japan will hold their policy meetings this week. Investors have paid more attention to monetary policy makers after a central bankers' conference in Portugal last month appeared to portend an eventual tightening of the easy-money policies introduced after the financial crisis.
European bond yields pared their gains from last week, which were driven by reports that ECB President Mario Draghi was planning to deliver a speech at the Federal Reserve's Jackson Holey symposium next month. He is expected announce his confidence in the eurozone's economic recovery to prepare for a tapering of the ECB's bond-buying program.
10-year German Treasury yields fell 2.8 basis points Monday ahead of the latest meeting on Thursday to discuss monetary policy. French 10-year government bond yields, or OATs, edged off 2.9 basis points to 0.84%.
But the case for moving away from easy-money policies has abated after a recent run of weak inflation numbers. Annual consumer price growth for the eurozone fell to 1.3% in June, after hitting a three-year high of 1.9% in April. The deteriorating inflation readings continue to miss the ECB'S target of below, but close to, 2% (https://www.ecb.europa.eu/mopo/html/index.en.html).
Over the weekend, emergency surgery for Sen. John McCain, R-Ariz., raised the prospect of further congressional deadlock, complicating the push to repeal and replace Obamacare. The Republicans are now missing enough votes to pass the latest version of the health care bill through the Senate.
Despite holding majorities in both houses of Congress, President Donald Trump's administration has had trouble carrying out its pro-growth agenda. This has faded the so-called "Trump Bump" which lifted Treasury yields higher as bond investors raised inflation expectations.
"We're not sure there's much left in the market in terms of optimism related to legislative progress, however any news of further delays or a logjam is marginally additive to our already bullish call for U.S. Treasurys," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note to clients.
See: McCain's surgery will delay vote on GOP health-care bill (http://www.marketwatch.com/story/mccains-surgery-will-delay-vote-on-gop-health-care-bill-2017-07-16)
On the economic data front, the Empire State Manufacturing survey fell to 9.8 from 19.8 (http://www.marketwatch.com/story/empire-state-manufacturing-index-retreats-in-july-from-two-year-high-2017-07-17). A measure of manufacturers' health in New York state, a positive number nevertheless represents an improvement. In the last six out of seven months, the index has been positive.
(END) Dow Jones Newswires
July 17, 2017 09:59 ET (13:59 GMT)