Treasury prices rose slightly, and yields declined, after a bombing at a concert in the U.K. drew some money into haven investments like bonds.
The Treasury yield for the 10-year note edged off 1.1 basis point to 2.244%, falling as low as 2.225% in early morning trading. Bond prices move in the opposite direction of yields; one basis point is equal to one hundredth of a basis point. The 2-year note lost 1.2 basis point to 1.275%, while the yield for the 30-year bond, the long bond, fell 0.9 basis point to 2.904%.
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Yields slumped as a terrorist bombing at a concert late Monday in Manchester stirred geopolitical concerns, pushing investors to U.S. government paper and assets considered as safe during overnight sessions. Moves were modest, however, with the dollar slipping 0.1% to 111.17 yen per dollar, while gold was flat in midmorning trade.
See:Death toll rises to 22 in suspected suicide bombing in Manchester (http://www.marketwatch.com/story/death-toll-rises-to-22-in-suspected-suicide-bombing-in-manchester-2017-05-23)
But the bid to safety abated as Treasurys began to trade hands in European markets buoyed by improving economic data. The Markit purchasing manager's index for the eurozone held steady at 56.8 (http://www.marketwatch.com/story/eurozone-economic-recovery-continues-in-may-2017-05-23), which nonetheless represented a six-year high. Any number above 50 is considered growth.
The German Ifo Business Climate Index index, which gauges sentiment from German executives and business owners, notched a record high of 114.6 above the expectation of 113.1 in April. The 10-year German benchmark bond, or the bund, gained 0.8 basis point to 0.405% in May.
"German business executives are pretty pumped, perhaps encouraged by the way the elections have been going around Europe," said Jennifer Lee, senior economist for BMO Capital Markets, in a note to clients.
Traders will focus on the White House's budget request for 2018 (http://www.marketwatch.com/story/more-than-2-trillion-in-savings-to-come-from-economic-growth-trump-budget-2017-05-22) on Tuesday. If President Donald Trump can pass his request through Congress, it could help revive the reflation trade as investors mark up expectations of his pro-growth policies including tax reforms and an infrastructure bill.
The reflation trade betted on growth and inflation to head higher, lifting stocks at the expense of bonds, but prices for both assets have traveled alongside each other, a reflection of the market's uncertainty over Trump's pro-growth policies.
With three weeks left to the U.S. central bank's decision to change interest rates, investors will eye speeches from senior Fed officials to gauge the level of consensus on the possibility of two further rate increases this year among its interest-rate setting committee. Fed. Governor Lael Brainard said it was unclear if the U.S. economy was at full employment or if labor slack continued to linger in the jobs market. Inflation was weaker than expected in March and April, even though U.S. unemployment levels are currently at 4.4%, a touch below the level considered full employment.
Minneapolis Fed President Neel Kashkari, a voting member this year of the Fed's rate setting policy panel, was scheduled to speak this morning, and appear again at a roundtable on building economic well-being for native communities through homeownership at 3 p.m. Eastern. Philadelphia Fed President Patrick Harker, also a voting member, will give a talk on the economic outlook in New York City at 5 p.m. Eastern.
The Treasury Department will auction off $26 billion of 2-year Treasury notes at 1 p.m. Eastern. Though government sales of Treasury notes can impact prices and yields for the overall market, analysts said demand for the coming auctions should be tepid as the Fed looks to hike rates in June.
(END) Dow Jones Newswires
May 23, 2017 09:42 ET (13:42 GMT)