U.S. Treasury Bonds Steady
U.S. government bonds were in a tight range Friday as investors took stock after Wednesday's sharp rally and Thursday's more modest selloff.
In recent trading, the yield on the benchmark 10-year Treasury note was 2.162%, according to Tradeweb, compared with 2.160% Thursday. Yields rise when bond prices fall.
After drifting slightly higher overnight, yields snapped back Friday morning after new data showed an unexpected decline in housing starts.
It has been an eventful few days for bonds. The 10-year yield dropped from around 2.2% to nearly 2.1% in a matter of hours Wednesday morning after the release of weaker-than-expected inflation data. By the end of Thursday, it had retraced more than half that decline as investors responded to signals from the Federal Reserve that it still plans to tighten monetary policy later this year, despite the recent softness in inflation.
As expected, the Fed Wednesday afternoon announced it was raising short-term interest for the second time this year. Central bank officials anticipate one more rate increase by the end of the year. They have also laid out plans to start unwinding the Fed's balance sheet, which ballooned after the financial crisis and now includes more than $2 trillion of Treasury debt.
"This is a significant moment," said Stanley Sun, interest-rates strategist at Nomura Securities International in New York. The Fed is taking a "big step in kind of unwinding the postcrisis accommodation and yet the market is taking it in stride."
Also steadying Friday was the 10-year break-even rate, which measures the yield premium on the 10-year Treasury note relative to the 10-year Treasury inflation-protected security. In recent trading, it was 1.678 percentage points, according to Tradeweb, implying investors expect inflation to run at a 1.678% annualized rate over the next 10 years.
The break-even rate was 1.680 percentage points Thursday, its lowest level since Nov. 4, having fallen from 1.790 percentage points a week ago, according to Tradeweb.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
June 16, 2017 10:38 ET (14:38 GMT)