BOND REPORT: Treasury Yields Hold Steady As Investors Await Fed Speakers

Minneapolis Fed President Neel Kashkari is slated to speak at 1:25 a.m. Eastern.

Treasury yields were mostly flat Monday as bond traders looked ahead to a pair of Federal Reserve speakers to see if the strong jobs data (http://www.marketwatch.com/story/what-economists-say-about-the-jobs-report-trump-calls-excellent-2017-08-04) released last Friday has added support for a December rate hike among central bankers, which could bruise prices for government paper.

The 30-year Treasury yield rose more than 1 basis point to 2.853%, after plummeting more than 5 basis points over last week. The 2-year Treasury yield added 0.4 basis point to 1.359%, while the 10-year benchmark Treasury note ticked 0.5 basis point higher to 2.271%. Bond prices move in the opposite direction of yields.

Investors in government paper have been unsettled by a lack of inflation, as healthy employment data report should stimulate wage and inflationary pressures. Friday's consumer-price data could prove pivotal as it could either strengthen or diminish the case for a more aggressive schedule for rate hikes. Traders anticipate a 50.4% chance of a December rate increase, according to the Chicago Mercantile Exchange's data (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/).

Analysts say one of the largest risks to bullish traders is a significant upshift in inflation. Higher consumer prices erode the fixed value of bond payments, but could also prompt the U.S. central bank to tighten rates further, delivering a one-two punch that could make holding long-dated Treasurys painful. The Federal Reserve is set to hike rates one more time this year, but senior Fed officials are conflicted over the move's prudence as inflation stays tepid.

"What could bring forward the timing of that hike? Higher-than-expected inflation in July and August would be a good place to start, at least to get the market more excited," noted Matthew Hornbach, an interest-rate strategist at Morgan Stanley.

Investors will watch for any changes to statements made by St. Louis Fed President James Bullard, a non-voting member, and Minneapolis Fed President Neel Kashkari, a voting member at 11:45 a.m. Eastern and 1:25 p.m. Both are considered so-called doves, or supportive of maintaining low rates and accommodative monetary policies.

Particular attention will be paid to Kashkari as his views could prove a "bellwether for what the doves might be thinking and most likely to sway the center," said Thierry Wizman, global interest rates and currencies strategist.

See: Why one Fed official is the skunk at the picnic on the jobs report (http://www.marketwatch.com/story/why-one-fed-official-is-the-skunk-at-the-picnic-on-the-jobs-report-2017-08-04)

Meanwhile, the Treasury Department is slated to auction $62 billion of bonds this week, ranging from tenors of 3 years to 30 years.

In Europe, German 10-year government bonds, also known as bunds, held steady after German industrial production fell 1.1% month on month in June (http://www.marketwatch.com/story/german-industrial-output-surprises-with-a-fall-2017-08-07)-- the first decline in 2017 -- after posting a 1.2% increase in May.

(END) Dow Jones Newswires

August 07, 2017 11:08 ET (15:08 GMT)