BOND REPORT: Treasury Yields Struggle To Lift Off After Early Economic Data
Vice Chairman Fischer set to step down from Fed; 10-year yield remains below 2.10%
Treasury yields were little changed Wednesday after a raft of lackluster economic data gave traders few reasons to sell government paper amid an overhang of uncertainty of geopolitical and meteorological risks.
The benchmark 10-year Treasury note yield ticked lower to 2.067%, from 2.072% in the previous session. The 2-year Treasury note yield was trading at 1.294%, versus 1.292% on Tuesday. Meanwhile, the 30-year bond yield was flat at 2.690%. Bond prices move inversely to yields.
Bond investors suggested the lack of direction in Wednesday's trading session could be down to traders consolidating their positions after heavy bond-buying pushed long-dated Treasury yields to fresh 10-month lows on Tuesday (http://www.marketwatch.com/story/treasury-yields-slip-as-north-korea-triggers-demand-for-havens-2017-09-05). Amid a streak of unsettling developments from the North Korean regime's nuclear capabilities and concerns about Hurricane Irma as Texas wrestles with deadly aftermath of Hurricane Harvey, investors have snapped up government paper and assets perceived as havens.
See: 'Potentially catastrophic' Hurricane Irma makes landfall in the Caribbean (http://www.marketwatch.com/story/potentially-catastrophic-hurricane-irma-makes-landfall-in-the-caribbean-2017-09-06)
The natural disasters refuse to relent with Hurricane Irma making landfall in the Caribbean. Bond investors have speculated that the damages from Hurricane Harvey and, subsequently, Irma would leave the U.S. economy with sizable bruises, tamping down on inflation pressures. Federal Reserve Gov. Lael Brainard said in speech on Tuesday (http://www.marketwatch.com/story/fed-may-have-to-slow-interest-rate-hikes-given-subdued-inflation-brainard-2017-09-05)that Harvey would "raise uncertainties about the economic outlook for the remainder of the year."
Meanwhile, Federal Reserve Vice Chairman Stanley Fischer on Wednesday announced plans to resign, months before his term as the central bank's No. 2 official was due to expire in June. His expected departure, as early as October, comes as the market frets about who the No. 1 role at the Fed, with Chairwoman Janet Yellen's term ending in February. It is unclear if President Donald Trump will renominate Yellen or if she would accept an extension of her tenure, raising doubts about the complexion of the central bank in coming months as it struggles to normalize interest rates and unwind a $4.5 trillion crisis-era asset portfolio.
The combination of concerns have helped to overshadow a raft of economic data released in the morning. The U.S. economy logged a smaller trade deficit of $43.7 billion, falling below the $44.8 billion from economists surveyed by MarketWatch, after both imports and exports showed a slight decline.
"Net external trade is still on course to provide a modest positive contribution to third-quarter GDP growth," said Paul Ashworth, chief U.S. economist for Capital Economics.
The ISM nonmanufacturing index, a gauge of the service industry's health, rebounded to 55.3 in August from 53.9 in July, but below the median consensus forecast of 56.
The Fed's Beige Book will also be released at 2 p.m., but few analysts expect anything new from the collection of anecdotes. Previous iterations have flagged issues of tight labor markets but also tepid wage growth, a conundrum for central bankers who need higher pay checks to justify an exit away from accommodative monetary policy.
Elsewhere, investors eyed key monetary policy meetings after the Bank of Canada raised interest rates and the European Central Bank set to meet on Thursday.
The Bank of Canada passed a quarter-percentage point hike for a second time in its current tightening cycle, leaving the benchmark interest rate at 1%. A surge in economic growth, which ran at 4.5% annualized rate (http://www.marketwatch.com/story/canada-is-fastest-growing-g-7-member-after-45-gdp-surge-2017-08-31) in the second quarter of this year, has put pressure on the central bank to normalize monetary policy.
Deutsche Bank's CEO John Cryan advised the European Central Bank (http://www.marketwatch.com/story/deutsche-bank-ceo-urges-ecb-to-end-cheap-money-era-2017-09-06-74851710)to begin cutting down its asset-purchases, citing concerns that an era of cheap money had stoked asset bubbles "in more parts of the capital market, where we wouldn't have expected them." But analysts feel the ECB President Mario Draghi would likely try to avoid spooking markets in Thursday's meeting by highlighting the importance of keeping quantitative easing in place.
The Canadian 10-year government bond was up 4.4 basis points to 1.907%. Meanwhile, the German 10-year government bond was flat at 0.337%.
(END) Dow Jones Newswires
September 06, 2017 12:21 ET (16:21 GMT)