U.S. Government Bonds Fade After North Korea Backs Off Threats
Government bonds retreated Tuesday, as tensions cooled between North Korea and the U.S. and retail sales showed the economy on strong footing.
The yield on the 10-year U.S. Treasury note settled at 2.264%, up from 2.217% Monday, in its largest one-day gain in three weeks. Yields rise as bond prices fall.
Reports that North Korea had stepped back from threats to attack Guam, a turnabout after the country's leader ordered his military to examine a plan for a missile strike last week, drew investors out of government bonds on Tuesday.
Bonds also extended declines after data from the Commerce Department showed sales at retailers and restaurants jumped 0.6% in July -- the strongest sales growth all year. Economists surveyed by The Wall Street Journal had expected a 0.4% increase in sales.
Bond investors have been watching economic data closely in recent months for signs of a pickup in inflation, which has lagged behind the Federal Reserve's 2% annual target this year and made many skeptical the central bank will rush to raise rates. Increased inflationary pressures would weaken demand for bonds since it chips away at the purchasing power of their fixed returns.
So far, however, the economy has appeared to be growing steadily but slowly, analysts said, suggesting bonds will trade in a relatively narrow range for now.
"The overall economic picture is hitting the 'sweet spot' of causing enough uncertainty about inflation to delay the next Fed hike while offering enough strength to keep the hopes for 2018 hikes alive," Aaron Kohli, interest-rate strategist at BMO Capital Markets, wrote in a note.
The day's developments sent Treasurys to their second consecutive session of declines. Some traders said a bond sale from Amazon.com put additional pressure on prices.
Amazon.com was set Tuesday afternoon to sell $16 billion of bonds to help fund its planned acquisition of Whole Foods Market, marking the fourth largest corporate bond deal of the year, according to Dealogic. Large corporate-debt sales can weigh on Treasurys as underwriters sell government debt to neutralize unwanted swings in interest rates and fund managers look to free up cash to absorb the new bonds.
Sam Goldfarb contributed to this article.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
August 15, 2017 16:00 ET (20:00 GMT)