BOND REPORT: Treasurys Yields Fall As Odds For Powell As Next Fed Chief Rise

Core inflation increases by 0.1% in September

Treasury prices rose, pulling yields lower, on Monday after reports reinforced the expectation that President Donald Trump was leaning toward Federal Reserve Gov. Jerome Powell, a perceived dovish nominee, as the next head of the central bank.

Where are Treasury yields?

The 10-year Treasury yield fell 3.3 basis point to 2.375%. The 2-year yield, sensitive to shifting expectations for monetary policy, gave up 2 basis point to 1.580%. The 30-year bond yield slipped 2 basis point to 2.898%.

Bond prices move in the opposite direction of yields.

What's driving the market?

Investors are still waiting for President Donald Trump to announce his pick for the next Fed chief. Analysts say the race is now down to Stanford economist John Taylor, who is considered as a hawkish choice, and Powell, someone more aligned with Fed Chairwoman Janet Yellen's take on monetary policy. The President is expected to announced his decision on Thursday.

A Reuters report on Monday said Trump was favoring Powell, following similar reports on Friday, which drew modest buying across the curve. Powell is viewed as dovish or less likely to push for an aggressive pace of rate increases.

See: Trump leaning toward appointing Powell to top Fed spot: report (http://www.marketwatch.com/story/trump-leaning-toward-appointing-powell-to-fed-report-2017-10-27)

Read: Trump to announce Fed chair selection on Thursday, White House official says (http://www.marketwatch.com/story/trump-to-announce-fed-chair-selection-on-thursday-white-house-official-says-2017-10-30)

Republicans in the House will reveal their proposed tax bill on Wednesday. But bondholders are concerned a rise in fiscal deficits will necessitate the Treasury Department to unload new government debt onto the market, potentially weighing on prices. Moreover, as the central bank cuts its balance sheet, the absence of large buyer is raising questions about which investors will step in to buy U.S. bonds.

Check out: House Republicans' tax overhaul bill to be opposed by home-builder trade group (http://www.marketwatch.com/story/house-republicans-tax-overhaul-bill-to-be-opposed-by-home-builder-trade-group-2017-10-29)What are strategist saying?

"In any event, news reports suggest that the president is leaning heavily toward nominating Governor Jay Powell, not the much-more-hawkish Professor John Taylor. As we have been discussing, Governor Powell seems more open to easing regulatory burdens on banks than Chair Yellen, but he is likely to largely continue on the monetary policy path favored by Chair Yellen," said Jim O. Sullivan, chief U.S. economist for High Frequency Economics.

What else is on radar of investors?

What other assets are moving?

The Spanish 10-year yield fell 10 basis points to 1.487%, after a poll showed the pro-independence separatists could give up their majority in a coming December election. The 10-year Italian yield also fell 12 basis points to 1.838%, after Italy received its first ratings upgrade from S&P Global Ratings in more than 30 years (http://www.marketwatch.com/story/sp-raises-italy-rating-one-notch-to-bbb-citing-economic-recovery-2017-10-27).

(END) Dow Jones Newswires

October 30, 2017 13:46 ET (17:46 GMT)