Treasury yields sag on North Korea tensions

12 Aug, 2017

US Treasury long-dated yields dropped to six-week lows on Thursday, pressured by continued tensions between the United States and North Korea as well as weak economic data that reduced expectations of an interest rate hike in December. Over the last two weeks, US 10-year note and 30-year bond yields have fallen 7 to 10 basis points as the North Korean issue has escalated.
A generally solid US 30-year bond auction also firmed demand for long-dated debt, although the specter of North Korea was a major influence on the market. North Korea on Thursday scoffed at warnings by US President Donald Trump that it would face "fire and fury" if it threatened the United States. The country also outlined detailed plans for a missile strike near the US Pacific territory of Guam.
"There is still a flight-to-quality move as people don't know what's going to happen," said John Bredemus, head of capital markets at Allianz Investment Management in Minneapolis. US data showed the biggest drop in producer prices in 11 months and an unexpected rise in weekly jobless claims, indicating economic weakness that could delay any coming rate hike by the Federal Reserve.
After the data, rates futures priced in a 42 percent chance of a rate hike in December, from a nearly 60 percent a month ago. In late trading, US 10-year yields slipped to 2.208 percent, a six-week low, from 2.242 percent late on Wednesday. US 30-year bond yields fell to 2.783 percent, from Wednesday's 2.818 percent. During the session, yields fell as low as 2.781 percent, a six-week low.
The US Treasury's $15 billion, 30-year bond auction was solid overall, with a high yield of 2.818 percent, slightly below the expected 2.819 percent at the bid deadline. There were nearly $34.8 billion in bids for a 2.32 bid-to-cover ratio, in line with the 2.31 last month and slightly higher than the 2.27 average. Indirect bidders, which include foreign central banks, took 66.8 percent, the highest since July 2016.

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