U.S. Government Bonds Weaken Amid Thin Trading

12/28/17 01:10 PM EST
By Daniel Kruger 

U.S. government bonds edged lower as traders described activity as thin and demand was scant, after a surprisingly strong year for fixed-income.

The benchmark Treasury 10-year note yield rose to 2.423%, according to Tradeweb, from 2.412% Wednesday. Bond prices fall as yields rise.

After three Federal Reserve rate increases, the 10-year yield remains near the 2.446% level at which it ended 2016, though the two-year yield at 1.899% is higher by about 0.7 percentage point, leaving investors split about the likely direction of yields next year.

The Fed has forecast it will raise rates three more times in 2018 and twice in 2019, as it says it intends to prevent inflation from gaining a foothold in the economy.

With investors increasingly confident that the Fed will meet its projection, some are looking for a continuation of the narrowing gap between the yields, with the faster gains for two-year yield rising, as it is more sensitive to expectations for changes in interest-rate policy.

Others expect the Republican tax overhaul package to lead to more growth and inflation, thereby pushing 10-year yields higher, and perhaps encouraging the Fed to accelerate its expected timetable for raising rates.

"This is going to be the big debate next year," said Edward Al-Hussainy, a fixed-income analyst at Columbia Threadneedle Investments.

The Treasury is scheduled to conduct its final bond auction of the year Thursday with a $28 billion offering of seven-year notes.

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


(END) Dow Jones Newswires

December 28, 2017 13:10 ET (18:10 GMT)

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