BOND REPORT: Treasury Yields Pare Climb After Strong Appetite For 30-year Bond Auction
Anticipated Fed rate hike on the radar for Wednesday
Treasury prices pared declines, allowing yields to stabilize, after strong appetite for an auction of long-dated debt. Meanwhile, the Federal Reserve has kicked off its closely watched two-day policy meeting, with a decision on interest rates expected Wednesday.
What are Treasurys doings?
The 2-year note yield was flat at 1.823%. The 10-year note yield rose to 2.404%, from 2.387% on late Monday. The 30-year bond yield was at 2.788%, versus 2.772%.
Bond prices move inversely to yields.
What's driving markets?
A strong auction for 30-year bonds helped pare the decline in prices. Sales of government paper can influence trading by introducing competing debt into the market, but a healthy appetite for the debt typically bodes well for secondary-trading prices, too.
Investors are seeing a lull in trading as busy bond-buyers handle a strong rush of supply from corporate and municipal bonds as issuers look to get ahead of the tax plan's passage and remain grand-fathered under the old tax rules. That has temporarily shifted focus away from the market for government paper.
The Federal Open Market Committee, the central bank's rate-setting group, convened on Tuesday. They are expected to deliver a third interest-rate hike for the year when they wrap up that meeting Wednesday. That fact and a bevy of other potentially market-moving news, including consumer-price index data, has captured investor attention.
See: What bond and currency traders are looking for from Yellen's Fed decision (http://www.marketwatch.com/story/what-bond-and-currency-traders-are-looking-for-from-yellens-fed-decision-2017-12-11)
What did market participants say?
"A primary reason for the tight core outlook for [10-year Treasurys] is the strong acceptance for the remaining supply in corporates--already thinning--and near record-level municipal bond sales that could be restricted if/when the tax bill passes. There is no particular reason to rush into Treasuries as they certainly will provide ample supply in 2018-2019," wrote Jim Vogel, an interest-rate strategist for FTN Financial.
Read: Municipal bonds see deluge of supply as Republican tax plan fears build (http://www.marketwatch.com/story/municipal-bonds-see-deluge-of-supply-as-republican-tax-plan-fears-build-2017-12-04)
(http://www.marketwatch.com/story/municipal-bonds-see-deluge-of-supply-as-republican-tax-plan-fears-build-2017-12-04)Also check out: Companies rush to sell bonds to get ahead of tax plan, sparking 'carnage' (http://www.marketwatch.com/story/companies-rush-to-sell-bonds-to-get-ahead-of-tax-plan-sparking-carnage-2017-11-10)
What else are on investors' radar?
The NFIB small business optimism index climbed to 107.5 in November (http://www.marketwatch.com/story/small-business-sentiment-in-november-powers-to-the-second-highest-reading-on-record-2017-12-12), the second highest reading on record. Budding confidence that Congress will pass a tax cut has lifted small-business owners, who are classified as pass-through firms, one of the chief beneficiaries of the GOP tax plan (http://www.marketwatch.com/story/how-the-trumps-tax-bill-will-help-businesses-and-lobbyists-2017-11-08).
Wholesale prices rose 0.4% in November, pulling it up to 3.1% over the past 12 months (http://www.marketwatch.com/story/us-wholesale-inflation-hits-nearly-6-year-high-adds-to-case-for-fed-rate-hike-2017-12-12). Higher producer prices can lead to building "pipeline" of inflationary pressures and is one reason forecasters are hopeful that the recent weakness in inflation will abate. That could discourage investors from snapping up long-dated Treasurys, whose value are worn down by higher prices.
How are other assets doing?
The German 10-year government bond yield was up 1.4 basis point to 0.311%. The French 10-year bond yield rose 1.7 basis point to 0.639%.
(END) Dow Jones Newswires
December 12, 2017 15:11 ET (20:11 GMT)