North Korea foreign minister claims Trump rhetoric is war declaration
U.S. Treasurys rose, pushing down yields, on Monday, in step with their German counterparts, after mixed results from Germany's weekend election and North Korea's threats against the U.S. fostered a modest flight to assets perceived as safer.
The benchmark 10-year Treasury yield fell more than 4 basis points to 2.220%. The 30-year bond yield experienced a similar drop to slip to 2.758%, while the 2-year Treasury note yield shaved 1.4 basis point to fall to 1.425%. Bond prices move in the opposite direction of yields.
Likewise, the yield for the German 10-year Treasury note, a proxy of the eurozone's viability, fell 5 basis points to 0.399%. German business confidence measures had also slipped (http://www.marketwatch.com/story/german-business-sentiment-falls-in-september-ifo-2017-09-25) as manufacturing showed signs of slowing.
U.S. government paper and German sovereign debt tend to trade in the same direction as they share similar qualities in that they are highly liquid and are viewed as relatively risk-free places for investors to store money.
Germany's election raised new questions about the eurozone's political landscape. Although German Chancellor Angela Merkel's center-right Christian Democrats come in first with around 33% of the vote, it marked the party's lowest share since the end of World War II. The center-left Social Democrats also saw their support fall to less than 21%, marking their worst showing since before World War II.
While Merkel's party is expected to lead a new coalition government, negotiations are expected to be prolonged. With an element of uncertainty still at play, investors say the outcome has stalled the eurozone resurgence, driven by improving economic conditions and Emmanuel Macron's victory over his far-right counterpart Marine Le Pen (http://www.marketwatch.com/story/emmanuel-macron-5-things-to-know-about-the-man-poised-to-be-frances-president-2017-04-24) in the French election this summer.
See: How Merkel's choice of partner could set the tone for the euro (http://www.marketwatch.com/story/dont-call-the-german-election-boring-it-could-mean-a-huge-shift-for-the-eurozone-2017-09-18)
Analysts at UBS estimated it could take three to six months for Merkel to form a new coalition, with a fully functioning government expected to settle in early in 2018.
The BlackRock Investment Institute saw the result "slowing momentum behind efforts to strengthen the eurozone."
Purchases of haven bonds, accelerated later in the session, after North Korea's foreign minister on Monday in New York said President Donald Trump's recent rhetoric is tantamount to a declaration of war, asserting his nation's right to shoot down U.S. aircraft. Investors shifted out of stocks and risky assets in favor of havens like the Japanese (http://www.marketwatch.com/story/euro-weakens-after-german-election-results-2017-09-25) yen and gold futures (http://www.marketwatch.com/story/gold-fights-to-shake-off-back-to-back-weekly-declines-2017-09-25).
Beyond politics, Chicago Fed President Charles Evans argued the Federal Reserve should hold off on raising rates until inflation. coming in below the central bank's 2% annual target, and wage pressures show clear signs of normalizing. But other Fed policy makers have been more hawkish in their view on monetary policy, suggesting growing consensus around at least one more rate increase in 2017.
Earlier in Monday, New York Fed President William Dudley said the factors keeping down consumer prices should dissipate and cited the rise in import inflation (http://www.marketwatch.com/story/feds-dudley-says-import-prices-will-help-boost-inflation-2017-09-25). The government reported last week that the cost of consumer goods had jumped 0.6% in August, the first increase in four months. (http://www.marketwatch.com/story/cost-of-imported-goods-surge-in-august-led-by-fuel-2017-09-19)
Read: Two Fed officials say 'normal' interest rates may peak far below prior cycles (http://www.marketwatch.com/story/feds-williams-says-normal-interest-rate-around-25-2017-09-22)
Meanwhile, European Central Bank President Mario Draghi announced his confidence that inflation would near its target rate, but repeated the party line that further monetary accommodation was needed to achieve the outcome. Nonetheless, some investors are anticipating the ECB to announce some measure of tapering its asset purchases next month (http://blogs.marketwatch.com/thetell/2017/09/07/ecb-live-blog-is-a-strong-euro-making-mario-draghi-miserable/).
(END) Dow Jones Newswires
September 25, 2017 16:28 ET (20:28 GMT)