U.S. Government-Bond Prices Strengthen as Investors Look to Lock In Gains

FeaturesDow Jones Newswires

U.S. government bonds strengthened in thin trading Wednesday, with analysts saying some investors were looking to lock-in gains in stocks and other assets by purchasing relatively safe fixed-income securities.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.430%, according to Tradeweb, from 2.467% Tuesday. Yields fall as bond prices rise.

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With the Dow Jones Industrial Average up roughly 2% for December and 25% for the year, many investors are taking advantage of a recent climb in Treasury yields by rebalancing their portfolios before the end of the year, said Andrew Brenner, head of global fixed-income at NatAlliance Securities.

Longer-term bonds "are on fire," Mr. Brenner said. "Part of it is the reallocation trade."

The gains in bonds came even as the price index for personal-consumption expenditures, the Federal Reserve's preferred inflation measure, held below the Fed's 2% target, rising 0.2% from October and 1.8% from a year earlier. After touching the Fed's annual target earlier this year, inflation has been below-target for nine consecutive months.

Fed officials increased their benchmark federal-funds rate by a quarter percentage point for a third time in 2017 to a range between 1.25% and 1.5%, meeting the forecast they made in December 2016. The central bank's current forecast calls for three rate increases in 2018 and two more in 2019.

The government is scheduled to wrap up its final bond auctions for the year with sales of five-year notes and floating-rate notes on Wednesday, and a seven-year note offering Thursday.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

U.S. government bonds strengthened in thin trading Wednesday, with some investors looking to lock-in year-end gains in stocks and other assets by purchasing relatively safe fixed-income securities.

The yield on the benchmark 10-year U.S. Treasury note posted its biggest one-day decline since Sept. 5, falling to 2.412% from 2.467% Tuesday. Bond prices rise as yields fall.

With the Dow Jones Industrial Average up roughly 2% for December and 25% for the year through Tuesday, many investors are taking advantage of a recent climb in Treasury yields by rebalancing their portfolios before the end of the year, said Andrew Brenner, head of global fixed-income at NatAlliance Securities.

Longer-term bonds "are on fire," Mr. Brenner said. "Part of it is the reallocation trade."

The gains came amid signs of a recent slip in consumer optimism. The Conference Board said Wednesday its measure of U.S. consumer confidence fell in December, after reaching its highest level in 17 years in November.

The yield on the 10-year note has fallen in three of the past four sessions, after posting the biggest weekly climb since the week of Sept. 15 following the passage of tax overhaul legislation, which some expect to boost growth and inflation. Higher prices are a threat to the value of longer-term government bonds, because they chip away at the purchasing power of their fixed payments.

The 10-year yield settled Wednesday below the 2.446% level where it ended 2016. The yield on the two-year Treasury note snapped a five-day streak of gains, settling at 1.899% from 1.903% the previous day.

The government is wrapping up its final bond auctions for the year, with a Wednesday sale of five-year notes that attracted demand at levels below recent averages, as well as a floating-rate note offering. The government is scheduled to end its auction calendar with a seven-year note offering Thursday.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

December 27, 2017 16:50 ET (21:50 GMT)