Treasurys Strengthen as Investors Await Fed News

U.S. government bond prices edged higher Monday as investors looked for clarity about whom President Donald Trump will nominate to lead the Federal Reserve.

The benchmark Treasury 10-year note yield fell to 2.372%, according to Tradeweb, from 2.381% Friday. Bond yields fall when prices rise.

Analysts said the implications for monetary policy may be significantly different depending on which candidate President Trump selects, leading investors to pause. Potential nominees John Taylor, a Stanford economics professor, and Kevin Warsh, a former Fed governor, are seen by investors as likely to favor raising interest rates at a faster pace than the central bank has suggested it will take.

Current Fed Chairwoman Janet Yellen and central bank Governor Jerome Powell are seen as more likely to maintain the status quo, in which the Fed projected three rate increases in 2018. White House economic adviser Gary Cohn has no record in central banking. Mr. Trump has said he would like to name his pick before his Nov. 3 trip to Asia.

"People are a little wary of getting out ahead" of a decision about the Fed's leadership, said Thomas Simons, a money market economist at Jefferies Group LLC.

Investors are also awaiting the European Central Bank meeting Thursday, looking for signs about whether policy makers there will move to slow or curtail the bank's EUR60 billion ($70.5 billion) in monthly bond purchases. The ECB's three-year-old negative interest-rate policy and its massive bond purchases have driven sovereign bond yields in the 19-nation currency bloc to near record lows, and encouraged investors to seek relatively higher yields in the U.S.

President Trump's tax overhaul plan, for which details remain scarce, also has the potential to affect bond prices. Investors expect that the passage of changes to the tax code would significantly widen U.S. budget deficits far into the future. The federal deficit widened in fiscal 2017 to $666 billion, the sixth highest on record. Bondholders often express concerns about rising debt levels, which can jeopardize the ability to make timely payments of principal and interest.

Treasurys prices edged higher Monday as investors paused to wait for clarity over whom President Donald Trump will nominate to lead the Federal Reserve.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.375% from 2.381% Friday, posting its second decline in three days. Bond yields fall when prices rise.

Some analysts said the implications for monetary policy may be significantly different depending on which candidate Mr. Trump selects. Potential nominees John Taylor, a Stanford economics professor, and Kevin Warsh, a former Fed governor, are seen by investors as likely to favor raising interest rates at a faster pace than the central bank has suggested it will take.

Others in the running are current Fed Chairwoman Janet Yellen and central bank governor Jerome Powell, both of whom are seen as more likely to maintain the status quo as the Fed has projected three rate increases in 2018. A fifth possibility, White House economic adviser Gary Cohn, has no record in central banking. Mr. Trump has said he would like to name his pick before his Nov. 3 trip to Asia.

"People are a little wary of getting out ahead" of a decision about the Fed's leadership, said Thomas Simons, a money market economist at Jefferies Group LLC.

Investors are also awaiting the European Central Bank meeting Thursday, looking for signs about whether policy makers there will move to slow or curtail the bank's EUR60 billion ($70.5 billion) in monthly bond purchases. The ECB's three-year policy of negative interest rates and its massive bond purchases have driven sovereign bond yields in the 19-nation currency bloc to near record lows, and encouraged investors to seek relatively higher yields in the U.S.

Mr. Trump's tax overhaul plan, for which details remain scarce, also has the potential to affect bond prices. Investors expect that the possible passage of changes to the tax code would significantly widen U.S. budget deficits far into the future. The federal deficit widened in fiscal 2017 to $666 billion, the sixth highest on record.

Bondholders often express concerns about rising debt levels, which can jeopardize the ability to make timely payments of principal and interest.

(END) Dow Jones Newswires

October 23, 2017 16:16 ET (20:16 GMT)