U.S. Government Bonds Fall, Led by Supply Concerns

02/08/18 11:46 AM EST
By Daniel Kruger 

U.S. government bond prices fell Thursday as investors braced for an increase in the supply of Treasury debt at a time when signs of accelerating growth and concerns about inflation have driven yields to multiyear highs.

The benchmark 10-year Treasury note yield rose to 2.868%, according to Tradeweb, from 2.843% Wednesday. Bond yields rise as prices fall.

The Treasury is selling $16 billion of 30-year bonds Thursday, a day after a $24 billion offering of 10-year notes met with tepid demand. Each sale is $1 billion larger than auctions of those securities in January, posing a test of the attractiveness of the debt, even as yields have climbed to the highest level since January 2014.

Yields are also being pushed higher by investor concerns that the budget deal reached in Congress on Wednesday is going to lead to a significant expansion of the deficit, on top of the tax cuts enacted at the end of 2017.

"We saw the momentum shift a couple of weeks ago," said Sean Simko, head of fixed-income portfolio management at SEI Investments. "We've seen the Treasury market selloff, and the move snowballed."

Improving economic data also contributed to Thursday's declines, some analysts said. The Labor Department reported Thursday that jobless claims fell to 221,000 from 230,000, near the lowest since 1973, and that the four-week moving average declined to 224,500, the lowest since the beginning of 1973.

Wage data released last week by the Labor Department showed signs that a tight job market is starting to create pressure for higher wages. That prompted investor concerns about a pickup in inflation, which can hurt the value of outstanding bonds, and that some investors and economists think could lead the Federal Reserve to raise rates at a faster pace than investors had expected.

The Bank of England said Thursday that it expects to raise interest rates in the U.K. at a swifter pace than it anticipated last year, responding to stronger growth in the global economy, further fueling expectations for global central bank tightening. The BOE said it held its benchmark interest rate steady this month but said the three quarter-point rate increases that investors anticipate over the next three years would be insufficient to bring annual inflation back to its 2% target, from 3% in December.

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

 

(END) Dow Jones Newswires

February 08, 2018 11:46 ET (16:46 GMT)

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