Treasury prices gain as stocks renew sell-off

11 Feb, 2018

US Treasury prices gained on Friday after renewed weakness in equity markets increased demand for the low-risk debt. Bond yields have jumped in the past two weeks as rising inflation and other economic data has led investors to adjust for the prospect of faster economic growth and the possibility the Federal Reserve will raise interest rates faster than previously expected.
Rising bond yields, however, have spooked equity investors, who worry that higher rates may dent growth. Volatility in equities has in turn added back a bid to hold low-risk US government debt. "As we've seen the volatility in equities creep back in_we've seen a bid hit the Treasury market," said Mike Lorizio, a senior fixed income trader at Manulife Asset Management in Boston.
Benchmark 10-year notes were last up 9/32 in price to yield 2.819 percent, down from 2.849 percent on Thursday. For most of the week they have traded near the high end of this week's range, which is between a four-year high of 2.885 percent and a low of 2.648 percent both reached on Monday.
A budget deal reached on Friday to increase spending increased concerns about rising debt issuance, which is expected to weigh on bond prices going forward. The budget bill raises military and domestic spending by almost $300 billion over the next two years.
"This is a larger effect on the deficit over the next two years than the tax bill by a significant margin," said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York. Issuance is also expected to jump as the Treasury rebuilds its cash position after the country's debt ceiling was lifted until March 2019.
The Treasury has already begun to increase the size of its public auctions to make up for declining purchases by the Federal Reserve, which analysts say may have added to the softness of $66 billion in new sales of three-, 10- and 30-year debt this week.

Read Comments