BOND REPORT: Treasury Yields Surge As Stocks Take Off And Corporate Supply Weighs On Market
Speculation that Apple will plan a mega debt-sale has kept investors on the sidelines
Treasurys mostly sold off, driving yields higher, on Tuesday as investors showed an appetite for risk, rotating out of bonds and other assets perceived as safe into stocks, while incoming corporate supply weighed on demand for U.S. government paper.
The 10-year benchmark Treasury note's yield rose 2.9 basis points to 2.284%. The 2-year Treasury note was steady at 1.355%, whereas the 30-year Treasury, known as the long bond rose 3.3 basis points to 2.866%. Bond prices move inversely to yields.
Risk-on sentiment took off spurring outflows from government paper as investors sold bonds and plowed into equities. Strong performance from financial stocks including J.P. Morgan Chase(JPM) put the Dow Jones Industrial Average on track (http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017) to hit its 10th straight record-setting session. On the other hand, haven investments like gold slipped, edging lower more than 0.1% to $1,263 an ounce.
"Stocks are off to the races, despite everybody being quite negative on equities going higher," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
Di Galoma also felt the broad selling seen across the curve came amid rumors that Apple Inc.(AAPL) could bring forward a large debt offering after posting better-than-expected earnings in its third quarter (http://blogs.marketwatch.com/thetell/2017/08/01/apple-reports-earnings-ahead-of-expected-iphone-launch-live-blog/). In the past, the company has taken advantage of historically low borrowing costs to return profits back to shareholders through dividends and stock buybacks. A large debt sale from a creditworthy firm could keep money managers on the sidelines as they free up cash to make their bids.
"There's been some speculation that [Apple] may bring on a very sizable deal. The market is being overwhelmed by corporate supply," said di Galoma.
The Treasury yield curve steepened after the Job Openings and Labor Turnover Survey showed a record number of openings, surging to 6.16 million in June from 5.66 million in May. A steepening yield curve, which chart maturities against the returns of a bond, suggests investors are betting that the strong labor market could stoke wage and inflation pressures. Higher consumer prices can erode the value of bond's fixed interest payments.
Elsewhere, the global economy showed signs of weakness despite previous calls that its recovery was back on track from the likes of the International Monetary Fund (http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017). The Japanese trade surplus came in at Yen518.5 billion ($4.7 billion) for June. Analysts also highlighted that the German trade surplus fell below expectations after exports fell for the time this yea (http://www.marketwatch.com/story/german-exports-fall-for-first-time-in-2017-2017-08-08)r, slipping to EUR22.3 billion ($26.3 billion) in the same month.
If major exporters like Germany lose steam it could reverse investor optimism over the eurozone's economic revival, and arouse further caution from the European Central Bank as it attempts to steer away from years of easy-money policies while avoiding a market tantrum.
"When combined with yesterday's disappointing German industrial production figures, which declined for the first time this year, the data brings into question the assumption that core Europe has made it out of the woods of cyclical stagnation," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note to clients.
The U.S. Treasury Department auctioned off $24 billion of 3-year notes to enthusiastic demand, a strong showing from the first of three key debt sales this week. Treasury yields can be influenced by auctions, but traders appeared to shrug off its results.
(END) Dow Jones Newswires
August 08, 2017 14:09 ET (18:09 GMT)