Treasury yields held their ground Monday, July's last trading day, but were mostly on track to pull back in a month marked by repeat records for equities and growing expectations that the pace of U.S. Federal Reserve rate increases will be hampered by slothful inflation.
The yield on the benchmark 10-year Treasury note ticked 0.2 basis point higher at 2.293%, compared with 2.291% late in New York on Friday.
The yield on the 2-year note barely budged at 1.351%. The yield on the 30-year Treasury bond added 0.3 basis point at 2.898%, compared with 2.895% in the prior session.
Bond prices move inversely to yields.
Traders said that sentiment in Treasurys has been focused on a lack of progress on President Donald Trump's pro-growth agenda as efforts last week to repeal and replace Obamacare failed in the Senate.
Thomas Simons, senior money market economist at Jefferies, said concerns about the ability of the government to strike an agreement to raise the debt ceiling, were also underpinning moves for haven Treasurys.
"The failure of the Senate to reach agreement on any of the sundry health care proposals reinforced the growing perception of the inept state of affairs in D.C. and appeared to signal the death knell for fiscal stimulus in 2017," Simons wrote in a July 28 research note. "The collision of a binding debt ceiling and the need to pass a budget for [full year 2018] promises to make for a chaotic and frustrating September on Capitol Hill."
On the data front, a report on Chicago-area manufacturing activity, or Chicago PMI (http://www.marketwatch.com/story/economy-in-chicago-region-cools-in-july-but-still-running-hot-pmi-shows-2017-07-31), slipped to 58.9 in July from a three-year high of 65.7. Meanwhile, a report on pending-home sales (http://www.marketwatch.com/story/pending-home-sales-snap-three-month-losing-streak-with-15-gain-in-june-2017-07-31)jumped in June after three months of declines, an upbeat sign for the industry that also reflected the spotty nature of momentum in the housing market. Treasurys were little-changed after the reports.
Lisa Hornby, U.S. fixed-income portfolio manager at Schroders, said data were mostly shaken off as investors are on the cusp of a stretch of trading in August that is notoriously slow.
"It's a quiet summer Monday today," Hornby said. "Data this morning was of limited significance, but all in all was a bit stronger than expected (pending home sales higher)," she said.
Meanwhile, Fed Vice Chairman Stanley Fischer said persistently low rates, despite the Fed's moves to lift benchmark rates, may "signal that the growth potential of the economy may be limited." Fischer's statements came during a Monday speech in Rio de Janeiro.
Yields across the curve fell slightly on Friday after data showed second-quarter gross domestic product accelerated to a 2.6% annual pace, below the consensus forecast of 2.8% by economists polled by MarketWatch. While the number is more than double the revised 1.2% pace seen in the first quarter, it leaves the U.S. economy on a tepid expansion path.
Treasury buyers have been particularly focused on the tepid pace of inflation, which has mostly helped to support bond buying, nudging yields lower. Rising inflation can have a corrosive influence on a bond's fixed value.
Some market participants interpreted the Fed's most recent policy statement last Wednesday, which adjusted its language to indicate that a reduction of its $4.5 trillion balance sheet would occur "relatively soon," compared with "this year" as a tacit acknowledgment by the U.S. central bank that weak inflation and other economic reports may delay its plan to normalize interest rates.
Activity in bonds came against the backdrop of an S&P 500 index and the Dow Jones Industrial Average rising to all-time highs (http://www.marketwatch.com/story/us-stocks-poised-to-squeeze-in-a-gain-as-strong-july-closes-out-2017-07-31). Gains in stocks, often perceived as risk assets, tend to weigh on haven Treasurys.
Elsewhere, the German 10-year benchmark bond known as the bund, was at 0.55%, climbing after data showed eurozone inflation growing by 1.2% in July.
In exchange-traded action, a popular bond fund, iShares 20+ Year Treasury Bond ETF(TLT), was set to end the week 1% lower but were up 4% so far in 2017.
(END) Dow Jones Newswires
July 31, 2017 14:33 ET (18:33 GMT)