Industrial production for July increases 0.2%
Treasury yields fell, pushing bond prices higher, on Thursday after a weaker-than-expected reading for industrial production and reports that Gary Cohn could resign as economic adviser to President Donald Trump helped to draw modest demand for government paper.
The 10-year Treasury note's yield fell 2.6 basis points to 2.197%. The two-year Treasury note's yield slumped 2.4 basis points to 1.306%, while the 30-year bond's yield fell by the same amount, slipping 2.4 basis points to 2.782. Bond prices move inversely to yields.
Yields pulled back across the board after industrial-production data for July increased by 0.2% (http://www.marketwatch.com/story/industrial-output-gets-boost-in-july-from-utilities-but-carmakers-are-a-drag-again-2017-08-17), its sixth straight month of gains, but slightly below the 0.3% consensus forecast from economists surveyed by MarketWatch.
"Overall, no big impact on third-quarter growth, but it doesn't help cooling expectations for further Fed rate hikes this year. There are still four months to go, but policy makers seem to be getting a little more cautious on the inflation front," noted Jennifer Lee, senior economist for BMO Capital Markets.
"The market just right now seems attentive to any piece of data that comes out, as a referendum on what is the current state of the economy," said Craig Bishop, lead strategist for U.S. fixed income at RBC Wealth Management.
Treasury yields continued their steady descent after reports that Gary Cohn would resign as chief economic adviser to Trump, one of many signs that the president's pro-growth agenda would stay on the backburner. Tepid expectations for the U.S. economy can be bullish for government paper. But a White House official rejected the rumors and said Cohn would keep his position in the administration, according to Reuters. (https://www.reuters.com/article/us-usa-trump-cohn-idUSKCN1AX1UU)
The political drama follows the dissolution of Trump's business advisory panels (http://www.marketwatch.com/story/trump-business-councils-disband-amid-wave-of-ceo-exits-2017-08-16).
See: Trump losing Gary Cohn could crash the stock market, warns Yale professor (http://www.marketwatch.com/story/team-trump-losing-gary-cohn-could-crash-the-stock-market-warns-yale-professor-2017-08-17)
Treasury yields had initially climbed in early morning trade as the jobless-claims report showed a fall of 12,000 to a six-month low of 232,000 (http://www.marketwatch.com/story/us-jobless-claims-fall-to-six-month-low-of-232000-2017-08-17) in the week ending Aug. 12, a sign that the strongest labor market in nearly two decades shows no sign of slackening. The U.S. unemployment rate currently stands at 4.3%, a 16-year low (http://www.marketwatch.com/story/us-gains-209000-jobs-in-july-unemployment-retouches-16-year-low-of-43-2017-08-04).
At the same time, the Philadelphia Fed business outlook survey's diffusion index, its broadest gauge of manufacturer's health for the Mid-Atlantic region, dipped slightly to 18.9 in August from 19.5 in July (http://www.marketwatch.com/story/philadelphia-fed-factory-gauge-eases-but-hints-at-future-strength-in-august-2017-08-17). Any number above zero represents growth in economic activity.
The choppy trading in Treasurys follows Wednesday's session, when the release of the Federal Reserve's minutes aided bond-buying (http://www.marketwatch.com/story/some-fed-members-say-bank-can-be-patient-on-interest-rates-due-to-low-inflation-2017-08-16). The minutes revealed central-bank officials were beginning to show heightened concerns over the perplexing absence of inflation amid a strong labor market, an alignment with the market's pessimism on the outlook for higher consumer prices. It also suggested the Fed could act in a more cautious manner when it decides on the appropriate pace for monetary tightening.
"Investors think any soft spot of inflation keeps the Fed on the sidelines," said Bishop. Consumer prices have fallen below expectations for three straight months since May (http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11).
In the wake of the minutes, Dallas Fed President Robert Kaplan, a voting member of the committee, said he wanted to see an improvement in inflation before entertaining the possibility of a further rate hike this year. Neel Kashkari, the Minneapolis Fed president and also a voting member, said he would watch how Congress deals with the upcoming debt-limit talks when deciding on a date for its balance sheet reduction.
Like the U.S., European traders dealt with a raft of economic data, showing the annual inflation rate across the eurozone at 1.3% in July, unchanged from June. But it underlined the economic bloc's struggles to translate an economic rebound into one for consumer prices, following Wednesday's report that second-quarter growth for the economic bloc had jumped 2.5% at an annualized rate (http://www.marketwatch.com/story/eurozone-recovery-aided-by-dutch-surge-2017-08-16).
The German 10-year government bond's yield slipped 2.4 basis points to 0.421%.
(END) Dow Jones Newswires
August 17, 2017 16:18 ET (20:18 GMT)