Treasury yields across the board tumble
Treasury yields tumbled Wednesday as political jitters lingered from President Donald Trump's dismissal of FBI Director James Comey and over intelligence protocol, drawing investors into bonds from stocks and riskier markets.
The yield for the 10-year note fell 11.4 basis points to 2.247%, for the largest one-day yield decline since June 27, 2016. Bond prices move inversely to yields.
Stocks fell sharply (http://www.marketwatch.com/story/us-stock-futures-slide-as-concerns-over-trump-grow-2017-05-17) as worries percolated that Trump will have trouble pushing forward with a pro-growth agenda focused on taxes and infrastructure, which had helped drive stocks to repeated records.
A week after Trump fired the Federal Bureau of Investigation director, an old memo from Comey, reported by the New York Times (http://www.marketwatch.com/story/trump-asked-comey-to-drop-flynn-investigation-report-2017-05-16), showed Trump had asked him to drop an inquiry investigating links between Russia and former National Security Adviser Michael Flynn. Flynn was removed from that post over revelations that he discussed with Russian ambassador Sergei Kislyak the possibility of lifting sanctions on Moscow and lied to Vice President Mike Pence.
Treasury buying rose in response to the news. The risk-off sentiment helped to buoy other assets perceived as safe. German sovereign bonds, or bunds, fell closely behind, with the 10-year bund losing 5.8 basis points to 0.374%. Gold also climbed 1.91% to $1260 an ounce.
Some analysts have said that the recent controversy shouldn't push back the schedule and likelihood of tax reform, which would boost economic growth and inflation, and diminish the returns of bonds' fixed payments. At the same time, speculation of Trump's impeachment has gained momentum as bookmakers (http://www.marketwatch.com/story/trump-impeachment-odds-increasingly-point-to-an-early-exit-2017-05-17)reflect higher odds for Trump's removal from office. This outcome would, however, require the support of two-thirds of the Republican-dominated Congress.
"What's starting to happen here is that the markets think this may be the end of the Trump presidency, that's one of the reason why we're seeing the flight-to quality bid," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. He concluded, however, that that outcome was unlikely.
A week light on economic data releases might keep traders especially sensitive to geopolitical concerns that have refused to go away.
"There is very little economic data out this week so external events will play a large role in the market direction," di Galoma said in his note.
Treasury yields for the two-year note lost 5.3 basis points to 1.246%, hovering close to their lowest levels in four weeks, while the 30-year bond, or the long bond, lost 9.6 basis points to 2.897%.
The yield curve, which charts a bond's returns against its date of maturity, flattened, suggesting traders may be cutting back on growth and inflation expectations, which can erode the value of bonds' interest payments. The spread between the two-year note and the 10-year note (https://fred.stlouisfed.org/series/T10Y2Y) narrowed to less than 100 basis points for the first time since Trump's election victory,
(END) Dow Jones Newswires
May 17, 2017 16:48 ET (20:48 GMT)