BOND REPORT: Treasury Yields Retreat Amid Tariff Uncertainty, CVS Health's Bond Sale
By Mark DeCambre, MarketWatch , Sunny Oh
Treasury yields pulled back slightly on Tuesday, erasing an early climb, after traders positioned amid a large corporate bond offering by CVS Health and as uncertainty over global tariffs on aluminum and steel imports persisted.
What are Treasurys doing?
The 10-year Treasury note yield was mostly flat 2.877%. The 2-year note yieldwas also mostly unchanged at 2.246%. The 30-year bond rate gave up by 1.6 basis points to 3.135%.
Debt prices move inversely to yields.
What's driving Treasurys?
Traders said the bond market stabilized as CVS Health Corp.(CVS) shopped some $40 billion dollar of debt Tuesday afternoon. Companies intending to issue bonds will rely on dealers to off-load the massive inventory and such dealers will often hedge a sudden rise in interest rates by selling Treasurys.
U.S. government bonds saw brief selling earlier after House Majority Leader Paul Ryan (http://www.marketwatch.com/story/ryan-calls-on-trump-to-make-steel-tariffs-surgical-2018-03-06) and other congressional Republicans appeared to ratchet up pressure on Trump to moderate his protectionist stance. While, Treasury Secretary Steven Mnuchin appeared to say the tariffs wouldn't apply to Mexico and Canada (http://www.marketwatch.com/story/mnuchin-says-steel-aluminum-tariffs-wont-apply-to-canada-mexico-if-nafta-renegotiated-2018-03-06) if the North American Free Trade Agreement is renegotiated. The lack of certainty on the trade front has sapped appetite for stocks, while stimulating demand for bonds.
U.S. government paper has sometimes received a slight lift from haven-related buying as investors took shelter against geopolitical turmoil. At the same time, economists warn tariffs could weaken the dollar and increase costs for broader U.S. industry, contributing to a buildup of inflationary pressures when market participants are already nervous about a flare-up in prices. Inflation is particularly bearish for long-dated bonds as they erode the value of their fixed-interest payments.
See: Trump's tariff plan creates rift among Republicans (http://www.marketwatch.com/story/trumps-tariff-plan-creates-rift-among-republicans-2018-03-06)
Read: Why a full-blown Trump trade war probably won't happen (http://www.marketwatch.com/story/why-a-full-blown-trump-trade-war-probably-wont-happen-2018-03-06)
What are market participants saying?
"Part of it is the persistent Trump headlines on trade, they seem to be hurting risk sentiment. you could be seeing bonds reacting stocks, which started higher earlier in the day. Part of it could also be anticipation once this large deal prices in the market, you'll have some of the hedges unwound, and you'll see rates rally," said Gennadiy Goldberg, rates strategist for TD Securities.
Rick Rieder, chief investment officer for global fixed income at BlackRock suggested in a tweet bonds were an imperfect shield against a potential trade war.
What else is on investors' radar?
Factory orders for January fell 1.4%, in line with expectations from Economists polled by MarketWatch.
In an interview on CNBC, Dallas Federal Reserve Bank President Robert Kaplan said (http://www.marketwatch.com/story/fed-should-start-hiking-rates-and-decide-later-how-many-moves-needed-this-year-kaplan-says-2018-03-06)the central bank should get started on raising interest rates and can decide as the year unfolds how many times to move. Kaplan isn't a voter this year on the Fed's rate-setting committee.
Federal Reserve Gov. Lael Brainard will speak about the monetary policy outlook in the New York City at 7:30 p.m. Eastern. Kaplan will participate in a moderated Q&A at an energy conference at 8:30 p.m.
(END) Dow Jones Newswires
March 06, 2018 16:26 ET (21:26 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.