Treasurys Give Back Earlier Gains

U.S. government bonds retraced early gains Friday, ending the day little changed as the departure of White House chief strategist Steve Bannon helped ease demand for safer assets.

The yield on the 10-year Treasury note settled at 2.196%, compared with 2.197% Thursday and 2.191% last Friday. Yields rise when bond prices fall.

After rising overnight and at the start of the U.S. trading session, bond prices fell after reports surfaced that Mr. Bannon was leaving the White House.

Mr. Bannon was seen as a leader of a populist wing of the Trump administration, which has sometimes clashed with officials more aligned with traditional Republican priorities, such as corporate tax cuts and regulatory rollbacks. Stocks also ticked higher after the news.

The moves came after two days of gains for the bond market, which came amid a string of events, including minutes from the Federal Reserve's latest policy meeting, terrorist attacks in Spain, and fallout from President Donald Trump's controversial response to the violence in Charlottesville, Va.

Traders have bought bonds based on "concerns about the state of politics in America, concerns about terrorism risks abroad, concerns about equity market performance -- it's just a slew of these things," said John Herrmann, rates strategist at MUFG Securities in New York.

Treasurys typically benefit from political uncertainty, though the impact has been modest in recent sessions. The 10-year yield continued Friday to hold within its tightest trading range since a 90-day period in 1972, according to WSJ Market Data Group.

After sharp swings last year, investors have recently arrived at a more settled view of the economy. Though most see little near-term risk of recession, many are unconvinced inflation will reach the Federal Reserve's 2% annual target any time soon and are similarly skeptical that the Fed will raise interest-rates at near the pace the central bank followed in previous cycles of monetary policy tightening.

While the Fed has raised interest-rates twice this year, minutes from the central bank's July meeting showed this week that some officials are hesitant to raise interest-rates again while inflation remains subdued.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, on Friday showed a roughly 41% chance of a rate-increase by December, down from 45% Thursday and 54% a month ago, according to CME Group data.

Analysts have pointed to the Fed's Jackson Hole conference next week as one near-term risk for the market. Fed Chairwoman Janet Yellen is scheduled Aug. 25 to give the opening speech at the conference on the topic of financial stability, a subject that has come under increased focus recently.

On Monday, Federal Reserve Bank of New York President William Dudley said in an interview with the Associated Press that rising asset prices suggested the Fed likely needed to do more to tighten financial conditions. A similar message from Ms. Yellen could lead to higher bond yields, analysts said.

Write to Sam Goldfarb at

(END) Dow Jones Newswires

August 18, 2017 16:07 ET (20:07 GMT)