BOND REPORT: Treasury Yields Slip On The Day, But Halt Weekly Streak Of Declines
10-year Treasury yield continues to linger below 2.30%
Treasury yields retreated on Friday as a batch of economic reports came in mixed ahead of the Memorial Day holiday, but a slight yield gain on the week was enough to halt a weekly string of declines for government bonds at two.
The yield for the 2-year Treasury note was unchanged at 1.298%, but rose 1.9 basis points over the week to post the largest weekly yield gain since May 5. The 10-year note fell 0.5 basis point to 2.248%, while the 30-year bond, or the long bond, lost 0.9 basis points to 2.913%.
Prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.
The Securities Industry and Financial Markets Association recommends bond markets should close at 2 a.m. Eastern on Friday and the bond market will be closed on Monday for the holiday.
Despite the slight weekly rise in yields, government bonds have mostly drawn bidders, keeping yields in range, even as the Federal Reserve looks set to lift interest rates in June. The Chicago Mercantile Exchange's FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)currently shows traders are betting on an 83% chance of a rate increase in June. Treasurys have seen healthy demand amid questions about the strength of U.S. economic growth and concerns about probes in President Donald Trump's administration, which could alter his inflation-boosting policy agenda.
Economic data on Friday showed the pace of growth in the first quarter wasn't as bad as an initial read. The government raised growth estimates from 0.7% to 1.2%, while the personal-consumption expenditure index, the Fed's preferred measure of inflation, was little changed at 2.4%. Meanwhile, durable-goods orders fell 0.7% in April, a 5-month low (http://www.marketwatch.com/story/orders-for-durable-goods-fall-to-5-month-low-2017-05-26); and the University of Michigan reported consumer sentiment has ticked up to 97.1 points in May, compared with 97.0 in April (http://www.marketwatch.com/story/consumer-sentiment-edges-up-in-may-as-americans-remain-politically-polarized-2017-05-26).
The data offered few reasons for traders to change their posture going into the extended holiday weekend, but still provided a somewhat muted view of the U.S. economy.
Analysts highlighted a worrisome decline in corporate profits for the first time in three quarters by a 2.5% annual rate, after climbing 2.3% in the fourth quarter of 2016. And the shipment of capital goods unrelated to military spending fell by 0.1% in April after having risen 0.2% in March.
The fall in investment spending "doesn't bode particularly well for second-quarter GDP" said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note.
Still, some strategists found reasons for subdued optimism about the economy.
"We're not at the beginning, and we're not anywhere near the end," said Sharon Stark, a fixed-income strategist for boutique investment bank Incapital. She pointed out the recent strength in business and consumer-confidence indexes suggested the U.S. economy was unlikely to be at the final innings of the business cycle.
See: Economy wasn't as bad as it looked in first quarter, GDP shows (http://www.marketwatch.com/story/economy-wasnt-as-bad-as-it-looked-in-first-quarter-gdp-shows-2017-05-26)
Meanwhile, St. Louis Fed President James Bullard, a nonvoting member of the central bank's interest-rate setting committee, maintained his dovish stance on Thursday night, saying the target level for its benchmark short-term interest rate was "very close" to where it should be.
On Wednesday, minutes from the Fed's policy meeting on May suggested that the central bank planned on continuing on their path toward normalizing monetary policy, but said they would pivot if coming data continued to demonstrate weakness.
(END) Dow Jones Newswires
May 26, 2017 16:09 ET (20:09 GMT)