By Sunny Oh
After 3 p.m. Eastern, yields continued to slip to around 2.26% after Trump said the dollar was ‘too strong’
Treasurys advanced Wednesday, nudging the benchmark 10-year yield further below 2.30%, as geopolitical jitters and late-session comments by President Donald Trump continued to fuel a bid for government bonds.
The yield on the 10-year Treasury notes slipped 0.4 basis point to 2.294%, establishing a new five-month low. After 3 p.m. Eastern, yields continued to slip to around 2.26% after Trump said the dollar was “too strong,” in an interview published Wednesday on The Wall Street Journal (https://www.wsj.com/articles/trump-says-dollar-getting-too-strong-wont-label-china-currency-manipulator-1492024312?mod=mktw).
Investors took advantage of the temporary weakness in the U.S. currency to pile into Treasurys, market participants said.
Yields for 30-year notes slipped 0.4 basis point at 2.928%, while the 2-year note also ended little changed at 1.234%. Bond prices move in the opposite direction of yields; one basis point is equal to one hundredth of a percentage point.
Escalating tensions in North Korea have stoked market jitters, analysts said. On Wednesday, China President Xi Jinping urged both North Korean leaders and President Donald Trump to peacefully resolve their issues (http://www.marketwatch.com/story/china-wants-a-peaceful-solution-to-north-korea-threat-xi-tells-trump-2017-04-12).
“The Treasury market is dealing with a risk-off trade in midst of a thinly traded holiday week due to political tensions in North Korea and Syria,” said Tom Di Galoma, managing director at Seaport Global Securities in a note. The bond market closes early on Thursday at 2 p.m. Eastern Time and remains closed in observance of Good Friday (http://www.marketwatch.com/story/why-financial-markets-are-closed-on-good-friday-2017-04-12).
Contributing to those geopolitical tensions, U.S. Secretary of State Rex Tillerson said U.S.-Russia relations are at a “low point” during a Wednesday news conference with his Russian counterpart Sergei Lavrov.
“There is a low level of trust between our two countries,” he said.
Tillerson’s comments come after the U.S. launched an airstrike in retaliation for chemical attack launched by Syrian President Bashar al-Assad. Officials in the White House have accused Russia of waging a war of trying to help cover up the chemical attack (https://www.wsj.com/articles/white-house-says-russia-tried-to-cover-up-syrian-chemical-attack-1491935440).
With yields closing below 2.30% on Wednesday, some analysts suggested the move might lead investors to rethink expectations for a selloff of U.S. government bonds as the Fed continues to tighten monetary policy.
On a more fundamental level, a breakthrough of the support level could draw questions on the viability of the reflation trade. Trump’s election victory had fueled expectations of inflation and economic expansion among investors awaiting pro-growth policies. But his failure to repeal and replace Obamacare has cast doubts on his ability to carry out fiscal stimulus and tax reforms.
“We start the trading day with the U.S. 10-year yield exactly at the lower band of its five-month trading range as we all debate the mixed messages that all these markets are sending on growth,” said Peter Boockvar, chief market analyst at the Lindsey Group, in a research note.
On the data front, import prices fell 0.2% in March, in line with consensus expectations. But as the dollar weakens and oil prices strengthen, April’s reading is expected to tick up. Meanwhile, data on the U.S. federal budget showed a deficit in March of $176.2 billion (http://www.marketwatch.com/story/us-runs-a-deficit-of-176-billion-in-march-2017-04-12), the Treasury Department said.
See: Global trade will push U.S. economy ahead, forecaster says (http://www.marketwatch.com/story/global-trade-will-push-us-economy-ahead-forecaster-says-2017-04-12)
(http://www.marketwatch.com/story/global-trade-will-push-us-economy-ahead-forecaster-says-2017-04-12)Meanwhile, sales for an auction of 30-year Treasury bonds attracted weak demand, following a poor showing in yesterday’s sale of 10-year notes. The bid-to-cover ratio of the 30-year bond auction was 2.23, below the 12-month average of 2.31. A higher ratio is an indicator of stronger demand.
Dallas Fed President Robert Kaplan, a voting-member of the central bank’s interest-rate setting committee, said the Fed could reduce the $4.5 trillion balance sheet while raising rates, during a question-and-answer session in Fort Worth, Texas. Market participants have expressed concerns over whether the Fed will be able to taper its balance sheet at the same time as hiking the benchmark interest rate.
12, 2017 17:27 ET (21:27
By Sunny Oh