Treasurys Strengthen After Recent Price Declines

U.S. government bonds strengthened Wednesday after a two-day pullback, as President Donald Trump's firing of James Comey as director of the Federal Bureau of Investigation offered investors some extra motivation to take advantage of higher yields.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.374%, according to Tradeweb, compared with 2.405% Tuesday.

Yields, which rise when bond prices fall, have climbed this week partly due to a large influx of new corporate and government bonds, which have tested demand while many investors are expecting the Federal Reserve to raise interest rates next month.

Tuesday marked the first time the 10-year yield has closed above 2.4% in more than a month. Still, many investors remain cautious about the outlook for economic growth and inflation, making it hard to sustain a selloff for more than a couple of sessions.

Though buyers may have been ready to step in regardless, traders and analysts said events in Washington also played a role, as Mr. Comey's firing caught investors off guard and once again raised concerns that the Trump administration could be distracted from pursuing policies that could aid the economy.

"It was unexpected," and anytime there is "uncertainty in the marketplace, people run first to the Treasury market for safety and quality," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

Recent debt sales were highlighted by a $24 billion sale of three-year Treasury notes Tuesday, which drew average demand. A $23 billion sale of 10-year Treasury notes is due Wednesday afternoon, followed by a $15 billion sale of 30-year bonds Thursday.

Write to Sam Goldfarb at

U.S. government bond prices retraced early gains Wednesday, ending the day slightly lower after an auction of 10-year notes drew soft demand.

Treasurys rallied overnight, driven in part by reaction to U.S. President Donald Trump's firing of Federal Bureau of Investigation Director James Comey, which caught investors off guard and once again raised concerns that the Trump administration could be distracted from pursuing policies that could aid the economy.

Prices, though, crept lower during the U.S. trading session and fully erased their earlier gains following the second leg of this week's new Treasury debt offerings.

The yield on the benchmark 10-year Treasury note settled at 2.414%, compared with 2.405% Tuesday. The $23 billion of new 10-year notes were sold at a 2.400% yield, with a range of statistics showing below-average interest from buyers. Yields rise when bond prices fall.

Analysts and traders pointed to several factors behind the midday recovery in yields, among them a report showing a larger-than-expected rise last month in import prices.

Overall prices for foreign goods shipped to the U.S. increased 0.5% in April from a month earlier, well above the 0.1% increase expected by economists surveyed by The Wall Street Journal.

The import-price index is one of several gauges of how quickly prices are rising in the U.S. It isn't as closely followed as some other measures, but the latest report does show some "inflation trickling in," said Thomas Simons, senior vice president and money-market economist in the Fixed Income Group at Jefferies LLC.

Inflation is a main threat to longer-term bonds, as it erodes their fixed returns over time.

Also weighing on Treasurys were comments from Federal Reserve Bank of Boston President Eric Rosengren, who reiterated his view that the Fed could raise interest-rates three more times this year after previously nudging up rates in March.

Mr. Rosengren isn't currently a voting member of the interest-rate-setting Federal Open Market Committee, and most Fed officials have projected two more rate-increases this year.

Still, his comments were consistent with a more hawkish tone set by officials in recent weeks, which has helped to lift yields off multimonth lows reached in April.

When the Fed raises short-term interest rates, it tightens money supply in the economy and tends to shrink the value of outstanding bonds.

Write to Sam Goldfarb at

(END) Dow Jones Newswires

May 10, 2017 15:47 ET (19:47 GMT)