Treasury yields mostly fell on Tuesday after stocks swung between gains and losses even as growing confidence over the progress of the U.S. economy raised the outlook for several rate hikes in 2018.
Bond markets were closed on Monday in observance of Martin Luther King Jr. Day.
What are Treasurys doing?
The 2-year note yield, sensitive to expectations for central bank policy, rose 1.7 basis point to 2.018%, up for the 10th straight trading session.
The 10-year Treasury note yield fell 0.7 basis point to 2.544%. Bond-market investors have been closely watching the benchmark's yield around 2.6%, which has served as a key resistance point for the 10-year. While, the 30-year bond yield fell 1.9 basis point to 2.836%.
Bond prices move in the opposite direction of yields.
What's driving markets?
Rising stock prices, economic optimism and tax-bill concerns put pressure on U.S. government paper in the morning. Bond prices tend to fall when stocks climb as they both represent opposite poles in a spectrum of risk. Investors toggle between the two assets depending on their appetite for higher returns.
But much of that support for higher yields petered out by the end of the trading session after political concerns around the White House and a government shutdown dampened investor appetite for equities (https://www.marketwatch.com). Short-dated yields remained elevated as stronger growth expectations heightened the possibility of the Federal Reserve to aggressively tighten monetary policy.
The federal government may run out of cash on Friday if Congress cannot agree on a short-term spending bill. The chance of the Democrats and Republicans coming up with a viable deal appeared to slip after a bipartisan immigration deal was rejected by President Donald Trump last week. A government shutdown would diminish the haven qualities of U.S. debt and could drive up borrowing costs.
See: Here's how the stock market has handled past government shutdowns (http://www.marketwatch.com/story/heres-how-the-stock-market-has-handled-past-government-shutdowns-2018-01-16)
What did market participants say?
"We're starting to see some decent economic numbers, and you're starting to get an idea of what is possible with corporate tax cuts, and that's had some impact on rates," said Tom di Galoma, head of Treasurys trading at Seaport Global Securities. He added he expected more than three rates hike this year.
"In the week ahead, the market will grapple with 2-year yields over 2% and 10-year yields that could well test 2.60% again. Data are light and the market is likely to focus on some additional Fedspeak, especially from Quarles at the end of the week as well as from Mester," said Ian Lyngen and Aaron Kohli, fixed-income strategists for BMO Capital Markets, in a note.
Randal Quarles, Fed vice chair for supervision, is set to deliver a speech on bank regulation to the American Bar Association in Washington at 1pm Eastern on Friday
What else is on investors' radar?
The Empire State manufacturing survey fell to 17.7 in January (http://www.marketwatch.com/story/empire-state-factory-gauge-softens-a-bit-in-january-2018-01-16), from 19.6 in December. The data release offers an economic snapshot of the state of New York.
Reuters reported (https://www.reuters.com/article/us-ecb-policy/ecb-unlikely-to-ditch-bond-buying-pledge-next-week-sources-idUSKBN1F514W) the European Central Bank was unlikely to drop its language on further bond buying at next week's meeting. This comes after previous reports the central bank signaled a willingness to change its policy statement to reflect improving growth in the eurozone. ECB governing council member François Villeroy de Galhau also said monetary stimulus should see a gradual withdrawal
What other assets are on the move?
The German 10-year government bond yield fell 3.1 basis points to 0.497%, according to Tradeweb data. The French 10-year government bond yield also slipped 3.1 basis points to 0.836%.
(END) Dow Jones Newswires
January 16, 2018 16:41 ET (21:41 GMT)