Treasurys Strengthen Following Recent Declines

U.S. government bonds strengthened Tuesday, showing some signs of resilience following recent declines.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.328%, according to Tradeweb, compared with 2.370% Friday.

Yields, which fall when bond prices rise, have climbed for the past four weeks, due partly to signals from the Federal Reserve that it will raise interest rates in December.

Traders have also responded to speculation that Federal Reserve Chairwoman Janet Yellen could be replaced next year with someone favoring tighter monetary policy and signs of progress in Congress toward passing tax cuts that could boost inflation and expand the budget deficit.

Geopolitical risks have helped curtail some of the momentum toward higher yields. Bond prices initially fell Friday after the latest jobs report showed strong gains in worker's hourly earnings. But they rebounded later in the day as investors focused on fresh headlines related to the North Korean nuclear threat and turmoil in Spain over the Catalonia independence movement.

The U.S. bond market was closed Monday for Columbus Day.

In the near-term, "we still have the risk of slightly higher yields just based on central-bank expectations," said John Canavan, market analyst at Stone and McCarthy Research Associates. At the same time, he said, "the geopolitical situation remains in flux, particularly in regard to North Korea."

This week could be an eventful one in the bond market. Auctions of three-year and 10-year Treasury notes are both scheduled for Wednesday, while a sale of 30-year Treasury bonds is slated for Thursday.

The Fed will release minutes from its September meeting on Wednesday afternoon, while new data on retail sales and the consumer-price index will be released on Friday.

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

U.S. government bonds strengthened Tuesday, showing some signs of resilience following recent declines.

The yield on the benchmark 10-year Treasury note settled at 2.343%, down from 2.370% Friday. The U.S. bond market was closed Monday for Columbus Day.

Yields, which fall when bond prices rise, edged lower as investors continued to weigh geopolitical risks against a variety of factors that have pushed yields higher in recent weeks.

Along with tensions between the U.S. and North Korea, Spain's political crisis has been a source of concern that is keeping a check on Treasury yields, according to analysts. Catalonia's separatist leader Tuesday stopped short of a declaration of independence that would take immediate effect but reasserted the region's right to become a separate state following an Oct. 1 referendum, which Spain's government has declared illegal.

Despite the worries, the 10-year yield has logged four consecutive weeks of increases, bringing it back to levels seen before a summer bond rally pulled it down to nearly 2%.

Signs that the Federal Reserve will raise interest rates in December have been one factor behind the recent selling. Speculation that Fed Chairwoman Janet Yellen could be replaced next year with someone favoring tighter monetary policy, and progress in Washington toward passing tax cuts that could boost inflation and expand the budget deficit, have also pressured bonds.

In the near term, "we still have the risk of slightly higher yields just based on central bank expectations," said John Canavan, market analyst at Stone and McCarthy Research Associates.

At the same time, he said, "the geopolitical situation remains in flux, particularly in regard to North Korea."

The Fed will release minutes from its September meeting on Wednesday afternoon, while new data on retail sales and the consumer-price index will be released on Friday, potentially offering fresh insight into the state of the economy and the outlook for monetary policy.

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

(END) Dow Jones Newswires

October 10, 2017 16:09 ET (20:09 GMT)