U.S. Government Bonds Pull Back, Extending Recent Declines

U.S. government bonds ticked lower Monday, extending recent declines as traders prepare for this week's Federal Reserve meeting.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.220%, according to Tradeweb, compared with 2.202% Friday.

Yields, which rise when bond prices fall, climbed last week, reflecting stronger inflation data, easing concerns about the economic impact of Hurricane Irma, and growing attention on the Fed's Sept. 19-20 meeting.

That followed a roughly two month-decline in the 10-year yield inspired largely by a run of soft inflation data and a widespread view that the Fed would stop at two interest-rate increases this year.

Treasury yields tend to fall on soft inflation data and rise on stronger inflation data because inflation chips away at the fixed returns of government debt and can lead the Fed to raise interest rates.

The consumer-price index, one of the most closely watched inflation gauges, grew 0.4% in August from a month earlier, the Labor Department said Thursday. That was the biggest jump since January.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, on Monday showed a roughly 57% chance that the central bank will raise interest rates again by December, according to CME Group data, up from 41% a week ago.

Not all economic data was encouraging last week. A report from the Commerce Department showed that spending at U.S. retailers fell 0.2% in August while sales earlier in the summer were revised downward.

"I thought that retail sales number was a horrible number," said Mary Ann Hurley, vice president of fixed income trading in Seattle at D.A. Davidson & Co.

Nevertheless, she said, the yield on the 10-year Treasury note had pushed so close to 2.0% that it was going to be difficult for it to keep falling "barring some sort of economic calamity."

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

U.S. government bonds pulled back Monday, extending recent declines as traders prepared for this week's Federal Reserve meeting.

The yield on the benchmark 10-year Treasury note settled at 2.230%, compared with 2.202% Friday, the sixth straight session that it has gone up.

Yields, which rise when bond prices fall, climbed last week. The gains reflected stronger inflation data, easing concerns about the economic impact of Hurricane Irma, and growing attention on the Fed's Sept. 19-20 meeting.

That followed a roughly two month-decline in the 10-year yield caused in part by a run of soft inflation data and a widespread view that the Fed would stop at two interest-rate increases this year.

Investors often sell Treasurys heading into Fed meetings as a hedge against the central bank signaling a shift to tighter monetary policy.

"This is one of the most well-telegraphed meetings," said Wan-Chong Kung, a bond fund manager at Nuveen Asset Management. "My base case is some hand wringing going into the event and a sigh of relief coming out of it."

The consumer-price index, one of the most closely watched inflation gauges, rose 0.4% in August from a month earlier, the Labor Department said Thursday. That was the biggest jump since January.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, late Monday showed a roughly 57% chance that the central bank will raise interest rates again by December, according to CME Group data, up from 41% a week ago.

Not all economic data was encouraging last week. A report from the Commerce Department showed that retail sales fell 0.2% in August while sales earlier in the summer were also revised downward.

"I thought that retail sales number was a horrible number," said Mary Ann Hurley, vice president of fixed income trading in Seattle at D.A. Davidson & Co.

Still, she said, the yield on the 10-year Treasury note had pushed so close to 2.0% that it would have been difficult for it to keep falling "barring some sort of economic calamity."

--Daniel Kruger contributed to this article.

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

(END) Dow Jones Newswires

September 18, 2017 16:06 ET (20:06 GMT)