BOND REPORT: 10-year Treasury Yields Holds On To Rise Even As Stocks Tumble

02/08/18 04:06 PM EST

By Sunny Oh

Treasury yields whipped around on Thursday as jittery investors pushed stock benchmarks sharply lower in another volatile session on Wall Street marked by inflation concerns, but the benchmark 10-year note yield clung to a rise

How are Treasurys performing?

The yield for the benchmark 10-year Treasury note was at 2.848%, up 0.8 basis point, after notching an intraday high of 2.875%. The 2-year note yield was down 0.4 basis point to 2.130%, the 30-year bond rate rose 1.8 basis point to 3.134%.

Debt prices move in the opposite direction of yields.

What's driving markets?

After a brief flight to safety pushed yields lower on Monday, with the Dow Jones Industrial Average shedding more than 800 points at its low, bonds experienced a resumption in selling, pushing yields back up. Wavering yields over the past several sessions have partially reflected concerns about rising inflation expectations that can erode the value of a bond and a flight to safety as higher yields, and borrowing costs, spur selling in stocks.

Rallying bonds helped to reverse the selloff seen in the morning after the Bank of England said strong inflation could bring forward the schedule for rate increases, putting pressure on U.K. government bonds. Its Monetary Policy Committee unanimously voted to keep interest rates unchanged (http://www.marketwatch.com/story/bank-of-england-signals-swifter-rate-hikes-2018-02-08) at 0.5%. The central bank has received flak from analysts arguing the U.K.'s interest rates are much too low as a weak pound has stirred up inflationary pressures.

The 10-year U.K. bond yield jumped 7.9 basis points to 1.617%, according to Tradeweb. While, sterling climbed to $1.3914, up from $1.3882 ahead of the BOE report.

See: Pound leaps above $1.40 after BOE hints at faster rate increases (http://www.marketwatch.com/story/pound-leaps-above-140-after-boe-hints-at-faster-rate-hikes-2018-02-08)

Investors said the fresh budget deal (http://www.marketwatch.com/story/congressional-leaders-say-theyve-struck-two-year-budget-deal-2018-02-07)could add a bearish impetus to Treasurys trading. Under the pact struck between congressional leaders, the $300 billion increase in federal spending over the next two years could further widen the budget deficit, adding to already burgeoning projections for issuance next year. But the bill will still need to be voted on in Congress.

Read: Bond market braces for $ 1 trillion tsunami of Treasurys this year (http://www.marketwatch.com/story/bond-market-braces-for-1-trillion-tsunami-of-treasurys-this-year-2018-01-16)

What did market participants say?

"U.S. stocks still have not found health or balance, and the 2650 level on the S&P 500 gave way again this morning. No one is safe from today's woes, with the odd exception of utilities," said Jim Vogel, interest-rate strategist for FTN Financial.

"Poor Treasury auctions means investors are demanding higher and higher yields and it's those higher yields that spooks stock investors," said Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors, referring to a lackluster 30-year bond auction that reignited selling later in the afternoon.

What else is on investors' radar?

Philadelphia Fed President Patrick Harker said he was open to a rate increase in March, according to Reuters (https://www.reuters.com/article/us-fed-harker-ratehike/feds-harker-open-to-u-s-rate-increase-in-march-idUSKBN1FS2B3). Minneapolis Fed President Neel Kashkari said the central bank was a "long way away" (http://www.marketwatch.com/story/fed-is-a-long-way-away-from-having-to-raise-interest-rates-due-to-wage-pressure-kashkari-2018-02-08) from raising interest rates due to wage-induced inflation. Kansas City Fed President Esther George is due to speak at 9 p.m.

None are voting members of the rate-setting Federal Open Market Committee this year.

 

(END) Dow Jones Newswires

February 08, 2018 16:06 ET (21:06 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.