BOND REPORT: U.S. 10-year Yield Tops 2.6% For First Time Since March

By Sara Sjolin, MarketWatch, Sunny OhFeaturesDow Jones Newswires

Market is keeping tabs on Washington, where the possibility of a partial government shutdown looms

The yield on 10-year U.S. government paper on Thursday jumped above 2.6% for the first time since March, a day after the Federal Reserve's Beige Book anecdotally suggested a tighter labor market was finally translating into wage gains.

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What are yields doing?

The yield on the benchmark 10-year U.S. Treasury note rose 2.7 basis points to 2.605%, trading around its highest level since mid-March, according to Tradeweb. The yield reached an intraday high of 2.620%.

The yield on the 2-year note added 1.3 basis point to 2.056%, while the rate on the 30-year bond climbed 3.1 basis points to 2.879%.

Yields and prices move in opposite directions.

What's driving the market?

Thursday's move was a continuation of the action late in Wednesday's session (http://www.marketwatch.com/story/treasury-yields-tick-higher-ahead-of-data-2018-01-17) after the Fed's so-called Beige Book, a roundup of economic anecdotes gathered by regional Fed banks, painted a portrait of a mostly robust U.S. economy.

The report also noted that most districts are starting to see "ongoing labor market tightness," a factor that could lead to a rise in wages and inflation. Higher inflation could accelerate the Fed's rate increases in 2018, which in theory would be supportive for U.S. yields.

Additionally, analysts said speculation that U.S. companies will repatriate earnings kept abroad was pushing yields higher. That means companies would have to liquidate their investments by selling Treasurys, which in turn would send yields higher. Apple said it would bring back its pile of overseas cash to plow into the U.S. economy (http://www.marketwatch.com/story/apple-to-invest-350-billion-in-us-economy-and-create-20000-jobs-2018-01-17) on Wednesday.

Traders also kept an eye on Washington, where the possibility of a partial government shutdown kept lawmakers busy. The current stopgap funding bill that was passed on Dec. 21 expires on Saturday and the White House and Congress have yet to reach a deal on extending it. Lawmakers have been trying to hammer out an agreement on immigration, which is seen as crucial to breaking the deadlock and keeping the government open.

What are analysts saying?

Yields are "pushing higher as markets started to price in a faster face of prospective rate rises, with both Charles Evans of the Chicago Fed and Robert Kaplan of the Dallas Fed painting a positive outlook for the U.S. economy, with the prospect of three rate rises this year as a base-case scenario," said Michael Hewson, chief market analyst at CMC Markets UK, in a note.

"After easing off a bit, the yield has since risen again to [2.60%]. This raises the question of whether we have simply witnessed a lull in a storm that will whip the yield up to a much higher level," said John Higgins, market economist for Capital Economics.

What else is on investors' radar?

Initial U.S. jobless claims fell by 41,000 to 220,000 (http://www.marketwatch.com/story/jobless-claims-sink-41000-to-45-year-low-of-220000-2018-01-18), the biggest weekly decline since 2009. Housing starts fell 8.2% in December (http://www.marketwatch.com/story/us-housing-starts-fizzle-at-end-of-2017-2018-01-18)to a 1.19 million annual rate, below the 1.28 million forecast from economists polled by MarketWatch.

(END) Dow Jones Newswires

January 18, 2018 10:01 ET (15:01 GMT)