BOND REPORT: Treasurys Catch Haven Bid On Government Shutdown Fears

Trump threatened to shut down the government to pay for the border wall between Mexico and the U.S. at a rally in Phoenix

Treasurys saw modest buying, dragging yields lower, on Wednesday after President Donald Trump threatened to shut down the government if he didn't get funding for a U.S.-Mexico border wall. The comments made at a pro-Trump rally in Phoenix represent a flashpoint for investors sensitive to the possibility of temporary closure of the Federal government amid a looming debt-ceiling deadline.

The benchmark 10-year Treasury yield dipped 2.5 basis points to 2.190%, erasing most of the week's rise. The 2-year Treasury yield ticked lower 2.1 basis points to 1.305%, while the 30-year Treasury bond's yield lost 2.5 basis points to 2.760%. Bond prices move in the opposite direction of yields.

Trump said he was willing to shut down the government to pay for the border wall ( U.S. and Mexico at the late-Tuesday rally. He also said he could end the North American Free Trade Agreement. Other assets perceived as havens such as the Japanese yen ( and gold ( bidders following his contentious statements.

Gold for December delivery rose $4.10, or 0.3%, to $1,294.20 an ounce. Against the yen, the greenback bought Yen109.12, compared with Yen109.57 late Tuesday in New York.

Although Trump has made similar pronouncements before, it revealed the lack of clarity surrounding the new administration's relationship with congressional leaders as the calendar approaches the deadline for raising the debt ceiling in autumn. His remarks also came on the back of promises made by Sen. Majority Leader Mitch McConnell, R-Ky., ( and Treasury Secretary Steven Mnuchin that the U.S. would pass a hike to the debt ceiling without trouble.

As geopolitical drama continues to overshadow U.S. financial markets, traders monitored economic data. Manufacturing purchasing managers' indexes, or PMIs, from IHS Markit showed a reading of 52.3, a two-month low, while the services PMI rose to a 28-month high of 56.9 ( New home sales was down 9.4%, slowing to an annual 571,000 pace from the 608,000 median forecast from economist surveyed by MarketWatch. Any reading above 50 indicates expansion.

And, Dallas Fed President Robert Kaplan, a voting member, will speak at an energy conference at 1:05 p.m. Eastern.

Meanwhile, European Central Bank President Mario Draghi spoke at Lindau, Germany ( Wednesday before the much-awaited conference at Jackson Hole, Wyo. He offered little clues on the future trajectory of the ECB's monetary policy, leaving the euro unchanged. Analysts said his comments revealed his caution after an episode of miscommunication in late June, when Draghi said he saw signs of reflation in the eurozone, leading the euro higher as currency traders anticipated an end to the ECB's EUR60 million ($70.8 billion monthly asset-purchasing program.

But some economists say the focus on the currency's swings distract investors from arguably a more important piece in the central bank's calculus--the rebound in growth all around the eurozone. The economic bloc posted a strong growth rate of 2.5% in the second quarter (, closely matching the 2.6% seen in the U.S.

"For the ECB the key thing is whether the recovery is continuing to broaden out, not the precise level of the euro," said David Owen, chief European financial economist at Jefferies.

The yield for the 10-year German bond, also known as the bund, slipped 2 basis points lower following the downdraft in U.S. government paper.

(END) Dow Jones Newswires

August 23, 2017 10:53 ET (14:53 GMT)