BOND REPORT: Treasurys See Modest Buying As ECB Announces 'dovish Taper'
Eurozone peripheral bonds saw the biggest moves, with Spain and Italy leading the way.
U.S. Treasury prices rose, pulling yields lower, on Thursday after the European Central Bank announced it would scale back its monthly asset-purchase program beginning next year, but extend the program.
What are yields doing?
The yield on the 10-year Treasury note was at 2.423%, compared with 2.444%. On Wednesday, the benchmark hit an intraday high of 2.474%, its highest since March 21, according to FactSet.
The 2-year Treasury yield was at 1.603%, versus 1.608% late Wednesday, while the 30-year Treasury bond yield was yielding 2.931%, compared with 2.954% in the previous session.
The yield on the 10-year benchmark German bond , known as the bund, was at 0.447%, compared with 0.478% on Wednesday. The Spanish 10-year yield plunged 8.1 basis points to 1.560%, while the Italian 10-year yield slipped 9.2 basis points to 1.970%.
Yields fall as Treasury prices rise.
What's driving the market?
ECB President Mario Draghi said the central bank would taper the eurozone central bank's monthly asset-buying program to EUR30 billion ($35.42 billion) in January from EUR60 billion, but extended the program to September 2018. A so-called dovish taper, the step away from monetary accommodation helped draw investors into European government paper, as buyers of Treasurys followed suit.
See: European Central Bank to cut bond purchases to 30 billion euros a month in January (http://www.marketwatch.com/story/european-central-bank-to-cut-bond-purchases-to-30-billion-euros-a-month-in-january-2017-10-26)
Live blog: ECB to begin tapering its massive bond-buying program in January (http://blogs.marketwatch.com/thetell/2017/10/26/live-blog-ecb-to-begin-tapering-its-massive-bond-buying-program-in-january/)
Bond investors will pay attention to Draghi's press conference to parse his comments on inflation, which has been running below the ECB's annual target of at, but not above, 2%. Inflation can chip away at a bond's fixed value, with signs of tepid wage growth and prices helping to push bond prices up and yields down.
Investors also continue to watch for an announcement from President Donald Trump on leadership at the Federal Reserve. The race appears to be down to Stanford economist John Taylor, who is seen as likely to take a more hawkish approach, and Fed Gov. Jerome Powell, who is viewed as similar to current Fed boss Janet Yellen, whose term ends in February.
Yellen and former Fed Gov. Kevin Warsh were reportedly out of the running (http://www.marketwatch.com/story/yellen-reportedly-out-of-race-to-be-fed-chief-2017-10-26). The recent report helped to give a modest lift to yields as it raises the likelihood Taylor could become the next Fed chief.
See: The bond market should brace for a possible 'Taylor tantrum' (http://www.marketwatch.com/story/the-bond-market-should-brace-for-a-possible-taylor-tantrum-2017-10-25)
What are strategists saying?
"[Draghi] couched it in dovishness by saying they can always increase it if needed and that negative interest rate policy will remain in place "well past" the end of QE. They will also reinvest maturing securities just as the Fed did with their balance sheet and this will be "for an extended period of time." Keep in mind though, if the ECB is actually successful in generating inflation closer to 2% (they are at 1.5%) sooner rather than later, this could change again. Bottom line, this is pretty much exactly as has been telegraphed," wrote Peter Boockvar, chief market analyst for the Lindsey Group.
"Right now, bond traders are growing concerned that the Federal Reserve may actually be serious about raising interest rates in 2018. Part of this relatively newfound worry comes from the uncertainty over who will be the next Fed Chair. Recent news reports that John Taylor has a shot (he is now in second place on the PredictIt website (https://www.predictit.org/Home/index5?utm_source=Google&utm_medium=Search&utm_campaign=desk.search.prediction.markets.v6&gclid=EAIaIQobChMI6cPPppmO1wIVg1uGCh1YRgFnEAAYASAAEgK9w_D_BwE)with 22% odds) at the job mean Fed rate policy may be different from the recent past. Different, and less predictable" wrote market strategists Nicolas Colas and Jessica Rabe co-founders of DataTrek in a Thursday research note.
What else are on investors' radar?
(END) Dow Jones Newswires
October 26, 2017 08:57 ET (12:57 GMT)