BOND REPORT: Treasury Yields Stabilize As Traders Await Third-quarter GDP Data
Southern European bond yields extend slide
U.S. Treasury yields held their ground early Friday as traders awaited an important report on third-quarter economic growth that could set the tone for investing in government bonds, offering the latest reading on the strength of world's No. 1 economy and the effects of a series of hurricanes.
What are yields doing?
The yield on the 10-year Treasury note was at 2.451%, compared with 2.452% late Thursday in New York. The 2-year Treasury yield stood at 1.623%, versus 1.618% in the previous session, while the 30-year Treasury bond yield traded at 2.957%, compared with 2.959% late Thursday.
Bond prices move inversely to yields.
What's driving the market?
The first read of third-quarter gross domestic product is due at 8:30 a.m. Eastern, which represents the last major piece of economic data before the Federal Reserve's policy-setting meeting next week. Although the U.S. central bank isn't expected to make any significant changes to policy at that meeting, investors anticipate the data will offer it more clarity on economy's ability to withstand one more increase to rates at its December meeting.
Hurricanes Harvey and Irma are expected to have muddled the numbers. Average estimates from economists polled by MarketWatch are for 2.4% growth, from 3.1% in the second quarter.
That data will be followed by a survey on consumer sentiment for October at 10 a.m. Eastern.
On Thursday, European Central Bank President Mario Draghi said the central bank would taper the eurozone central bank's monthly asset-buying program to EUR30 billion ($35.42 billion) in January from EUR60 billion, but extended the program to September 2018. A so-called dovish tape (http://www.marketwatch.com/story/draghi-averts-taper-tantrumfor-nowas-ecb-begins-slow-walk-to-normalization-2017-10-26)r, shifting away from monetary accommodation helped to draw investors into European government paper.
Investors weigh the prospect of a replacement for Fed Chairwoman Janet Yellen. whose term ends in February and who appears to be out of the running for the top spot. Front-runners are said to be Stanford economist John Taylor, who is seen as likely to take a hawkish approach and Fed Gov. Jerome Powell, who is viewed as similar to Yellen.
What are strategist saying?
"Some of the recent moves in yields have been driven by expectations of a hawkish Fed chair as opposed to optimism around tax reform," wrote rates analysts Ralf Preusser and Shyam Rajan in a Bank of America Merrill Lynch research note dated Oct. 27.
The strategists said "despite the approaching QE limits, Draghi signaled to markets that both rates and [European government bond] volatility will remain low for longer. Strong economic growth, low volatility and purchases still running at EUR60bn/m until year-end, endorse long carry trades."
Which other assets are moving?
Bond yields in peripheral European countries continue to slide amid what has been viewed as a less aggressive plan by the European Central Bank to scale back its monthly asset-purchase program, pushing yields and the euro lower to around $1.16.
The yield on the 10-year benchmark German bond yield , known as the bund, was at 0.405%, compared with 0.413% on Thursday. The Spanish 10-year yield was at 1.547%, compared with 1.560%, while the Italian 10-year yield slipped 1.929%, versus 1.958%.
Global stocks rose, with the Dow Jones Industrial Average , the S&P 500 index and the Nasdaq Composite Index all set to rise party on the back of a solid round of quarterly earnings from some of the U.S.'s biggest technology companies.
(END) Dow Jones Newswires
October 27, 2017 07:44 ET (11:44 GMT)