Treasurys Extend Recent Gains

U.S. government bonds strengthened Monday, picking up where they left off last week as investors reassess risks that led them to sell bonds for much of the previous two months.

The yield on the benchmark 10-year Treasury note settled at 2.318%, compared with 2.343% Friday.

Yields, which fall when bond prices rise, have been on a steady retreat since the 10-year yield came close to reaching 2.5% near the end of October.

Analysts have pointed to several reasons behind the move, including President Donald Trump's nomination of Federal Reserve Board governor Jerome Powell as the next Fed chairman. Mr. Powell was seen as among the potential candidates least likely to shift to a more aggressive pace of interest-rate increases.

Prices of 10-year notes also have been supported by signals from the Treasury Department that it would meet additional borrowing needs largely through sales of short-term debt, keeping the weighted average maturity of outstanding debt at roughly current levels. Some investors had expected more issuance of long-term debt, possibly including new ultralong bonds such as those with 50-year maturities.

Recent developments have shown that a long-term move higher in yields "is going to be quite a bit more choppy than just a straight line," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

Investors had sold bonds in recent months partly out of the expectation that Congress would pass deficit-expanding tax cuts, but they have turned more skeptical recently as lawmakers have taken steps to advance a bill and political obstacles have come into focus, Mr. Goldberg said.

Meanwhile, demand for short-term bonds remains strong. The yield on two-year note settled Monday at 1.616%, down from 1.624% Friday but still up from 1.592% on Oct. 31.

Despite adjusting their expectations on other issues, investors still expect the Fed to raise interest rates in December, a move that typically has a larger negative impact on shorter-term Treasurys than longer-term bonds.

Federal funds futures, used by investors to place bets on the Fed's rate-policy outlook, showed late Monday a 100% chance that the central bank will raise rates at its December meeting, according to CME Group data, up from 93% a week ago.

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

(END) Dow Jones Newswires

November 06, 2017 15:50 ET (20:50 GMT)