Treasurys Extend Decline, Pushing 10-Year Yield Above 2.6%
A continued slide in U.S. government bond prices pushed the yield on the 10-year Treasury note above 2.6% Thursday, a fresh milestone spurred by investors' growing confidence in the global economy.
In recent trading, the yield on the benchmark 10-year Treasury note was 2.609%, according to Tradeweb, up from 2.579% Wednesday and exactly matching its 52-week closing high set last March.
Yields, which rise when bond prices fall, have been climbing steadily this year after being held in check for much of 2017 by a variety of factors, including soft U.S. inflation and a series of alarming geopolitical headlines. So far this year, investors have focused instead on improving economic data around the globe and signs that major central banks could be stepping back from postcrisis stimulus policies.
Several analysts said that one factor weighing on bond prices Thursday was a report that China's economy expanded at a rate of 6.9% last year. That was higher than markets expected and the country's first growth acceleration in seven years.
Signs of inflation have also propelled selling in government bonds recently. Consumer price-index data released Friday showed a larger than expected jump in so-called core prices that exclude volatile food and energy categories. Many investors are confident that a tightening labor market will soon lead to more substantial increases in workers' wages, putting upward pressure on prices more broadly.
Treasurys have come under pressure because "inflation is picking up a little bit domestically, global growth is rising, central banks are removing liquidity" and recently-passed tax legislation is causing U.S. companies to repatriate foreign earnings, said Daniel Mulholland, head of U.S. Treasury trading at Crédit Agricole.
In addition, the new tax law will likely spur an increase in the supply of Treasurys just as investors are being asked to make up for less demand from the Fed, which is reducing its massive bond portfolio, Mr. Mulholland added.
Some analysts don't expect selling to accelerate significantly. Some key measures of U.S. inflation remain below the Federal Reserve's 2% annual target, providing continued support to Treasurys because inflation is a main threat to government bonds, eroding the purchasing power of their fixed returns.
The looming threat of a government shutdown also has yet to have much impact on the bond market, analysts and investors noted.
Though legislative standoffs can sometimes stoke demand for Treasurys, 'the market's finally gotten the joke, since we've been in this situation several times in the past," said Thomas Simons, senior vice president and money-market economist in the Fixed Income Group at Jefferies LLC. If the government does shut down, it would be more of an annoyance than anything "meaningful for economic activity," he added.
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Daniel Kruger
contributed to this article.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
January 18, 2018 11:52 ET (16:52 GMT)