Treasurys Bounce Back From Early Declines

FeaturesDow Jones Newswires

U.S. government bonds pulled back Thursday, retracing some of their gains from Wednesday as investors booked profits and responded to strong economic data on both sides of the Atlantic.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.381%, compared with 2.353% Wednesday.

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Yields, which rise when bond prices fall, climbed overnight as fresh data pointed to economic strength in the eurozone. The composite Purchasing Managers Index rose to its highest level in almost seven years, led by an acceleration of activity among factories.

Bond prices fell further after the Commerce Department said that spending at stores, online-shopping websites and restaurants rose 0.8% in November from the prior month. That was above the 0.3% increase anticipated by economists surveyed by The Wall Street Journal.

Bond prices tend to decline on positive economic news because faster economic growth can lead to higher inflation, which is a main threat to government bonds, chipping away at the purchasing power of their fixed returns.

At the same time, inflation has lagged behind other data this year, ensuring strong demand for long-term Treasurys. On Wednesday, the Labor Department reported that, excluding volatile categories of food and energy, the consumer-price index rose just 0.1% in November from the previous month, below economists' estimates for a 0.2% increase.

In recent days, there has been "a lot of running in place, but there really haven't been that many surprises," said Matt Freund, co-chief investment officer and head of fixed-income strategies at Calamos Investments.

The Federal Reserve on Wednesday said it would raise its benchmark federal-funds rate by a quarter percentage point. That move, though, was widely expected, and the central bank signaled it would continue on its current path of gradual rate increases.

Similarly, the European Central Bank on Thursday lifted its forecast for economic growth but made no changes to interest rates or its bond-buying program, which is set to remain in place until September 2018.

Both the Fed and the ECB delivered messages that were "right down the middle" of investors' expectations, Mr. Freund said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bonds retraced early losses Thursday, ending the session close to where they started after the previous day's rally.

The yield on the benchmark 10-year Treasury note settled at 2.346%, compared with 2.353% Wednesday.

Yields, which fall when bond prices rise, initially climbed as investors responded to strong economic data on both sides of the Atlantic.

In Europe, the composite Purchasing Managers Index rose to its highest level in almost seven years, led by an acceleration of factory activity. In the U.S., the Commerce Department said that spending at stores, online-shopping websites and restaurants rose 0.8% in November from the prior month. That was above the 0.3% increase anticipated by economists surveyed by The Wall Street Journal.

Bond prices tend to decline on positive economic news because faster economic growth can lead to higher inflation, which is a main threat to government bonds, chipping away at the purchasing power of their fixed returns.

At the same time, inflation has lagged behind other data this year, ensuring strong demand for long-term Treasurys. On Wednesday, the Labor Department reported that, excluding volatile categories of food and energy, the consumer-price index rose just 0.1% in November from the previous month, below economists' estimates for a 0.2% increase.

In recent days, there has been "a lot of running in place, but there really haven't been that many surprises," said Matt Freund, co-chief investment officer and head of fixed-income strategies at Calamos Investments.

The Federal Reserve on Wednesday said it would raise its benchmark federal-funds rate by a quarter percentage point. That move, though, was widely expected, and the central bank signaled it would continue on its current path of gradual rate increases.

Similarly, the European Central Bank on Thursday lifted its forecast for economic growth but made no changes to interest rates or its bond-buying program, which is set to remain in place until September 2018.

Both the Fed and the ECB delivered messages that were "right down the middle" of investors' expectations, Mr. Freund said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

December 14, 2017 15:57 ET (20:57 GMT)