BOND REPORT: Treasury Yields Trim Decline As Stocks Come Roaring Back
By Sara Sjolin, MarketWatch , Sunny Oh
Treasury yields trimmed their decline on Tuesday but still ended lower after stocks rebounded from the previous day's rout that drew investors into perceived safe havens and pushed bond prices higher.
How are Treasurys performing?
The yield on 10-year Treasury notes fell 2.8 basis points to 2.766%, after having fallen as low as 2.648%. The benchmark yield had risen to a four-year high of 2.883% on Monday.
The 2-year note yield was mostly flat at 2.091%, while the 30-year rate was down 2.3 basis points to 3.043%.
German 10-year Bund yields shed 4.6 basis points to 0.691%, according to Factset data.
What is driving the market?
The bond buying on Tuesday abated after stocks surged a day after a historic selloff in the U.S. when the Dow Jones Industrial Average suffered its biggest one-day point drop ever. Investors tend to flock into bonds and other assets perceived as safe to take shelter from turmoil in riskier assets, such as stocks.
Rising Treasury yields and their implications for corporate borrowing costs have been cited in helping to drive the stock selloff.
But with stocks rebounding in a volatile session, investors who sought shelter in government paper began shifting back into equities as part of the usual toggling between the two assets. The Dow was up more than 500 points, while the S&P 500 rose 1.75%.
But some said the earlier bond-buying would eventually give way to higher yields as a deluge of issuance, inflation concerns, and further monetary tightening by the Federal Reserve weighed on Treasurys. Bond yields and prices move in inverse directions.
Other safe-haven assets such as gold and the Japanese yen fell on Tuesday.
See: Why we aren't seeing a traditional flight to haven currencies as global markets swoon (http://www.marketwatch.com/story/why-we-arent-seeing-a-traditional-flight-to-haven-currencies-as-global-markets-swoon-2018-02-06)
What are strategists saying?
"The dramatic volatility exhibited in the stock market this week certainly was ratcheted up by concerns over the rise in overall yields. In addition, investors are demanding an additional yield premium for their reignited concerns about inflation," said John Mousseau, director of fixed income for Cumberland Advisors.
"The early stability in stock markets kept the flight to quality bid from materializing," said Aaron Kohli, fixed-income strategist for BMO Capital Markets.
What else is on investors' radar?
St. Louis Fed President James Bullard said a stronger labor market would not necessarily send inflation higher (http://www.marketwatch.com/story/feds-bullard-tries-to-calm-markets-inflation-fears-2018-02-06). He said the relationship between wages and inflation has broken down in the last few years.
A 4-week Treasury bill auction saw dealers take most of the government paper onto their own inventory, a sign of a weak appetite. Past sales of short-term debt have suffered from lackluster demand as legislative tensions in Congress threaten to prevent a successful resolution to a debt-ceiling extension and a spending crunch.
President Donald Trump said he was willing to risk a government shutdown (http://www.marketwatch.com/story/trump-says-hed-love-to-see-shutdown-if-democrats-dont-agree-on-immigration-2018-02-06)if Democrats in Congress did not agree to an immigration deal.
(END) Dow Jones Newswires
February 06, 2018 16:23 ET (21:23 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.