BOND REPORT: Treasury Yields Close At Nearly 2-week High After Fed Minutes
October 08 2015 - 5:22PM
Dow Jones News
By Ellie Ismailidou, MarketWatch
The Fed cited concerns over global growth slowdown and market
volatility
Treasury prices fell on Thursday, pushing yields to their
highest level in nearly two weeks, after the minutes from the
Federal Reserve's September meeting revealed policy maker's
concerns about the global economy.
Treasury yields rise when prices fall and vice versa.
The report showed that the Fed kept interest rates at ultralow
levels due to "global economic and financial developments."
(http://www.federalreserve.gov/newsevents/press/monetary/20151008a.htm)
The central bank decided it would be "prudent" to wait for more
data to confirm the U.S. economy was growing at a moderate rate and
labor market conditions had improved further.
Following the release of the minutes, Treasury yields initially
fell and then surged, resulting in a 10-basis-point swing in less
than one hour.
Fixed-income strategists were struggling to interpret the
gyration in Treasury yields, particularly since rate-hike
expectations, as reflected in the Fed-fund futures market, didn't
change after the minutes.
"The minutes struck us as a tad dovish -- nothing big here --
but rather steady...and, notably, when the minutes came out,
Fed-fund futures did nothing. The latter is perhaps the best
manifestation of the market's view of things," David Ader, head of
government bond strategy at CRT Capital Group, said in a note.
Others attributed the volatility to the content of the
minutes.
There is a "circular relationship between market volatility and
Fed policy," said Bryce Doty, senior fixed-income manager at Sit
Investment Associates.
According to Doty, the Fed's uncertainty sparks market
volatility but heightened volatility worries the Fed and so on.
"It's like the tail wagging the dog," Doty said.
On balance, the yield on the benchmark 10-year Treasury note
ended Thursday's session 4.6 basis points higher to 2.108%, its
highest level since Sept. 25, according to Tradeweb. One basis
point is equal to one hundredth of a percentage point.
Meanwhile, the yield on the 30-year bond gained 7.7 basis point
to 2.961% while the yield on the two-year Treasury note climbed 0.8
basis point to 0.637%.
The market's rate-hike expectations dropped precipitously last
week
(http://www.marketwatch.com/story/treasury-yields-drop-to-5-month-lows-after-weak-jobs-report-2015-10-02),
after the U.S. economy saw a surprising decline in payrolls in
September.
On Thursday morning, the Labor Department said that the number
of people who applied for U.S. unemployment benefits fell
(http://www.marketwatch.com/story/jobless-claims-fall-to-263000-lowest-since-july-2015-10-08)in
the week ended Oct. 3 to its lowest level since mid-July.
"Once again this week, the jobless-claims data suggest that the
labor market continues the relentless march towards full
employment. However the persistence of these low levels of claims
stands in contrast to the weak payroll growth in both August and
September," said Thomas Simons, an economist at Jefferies, in a
note.
Abroad, European government bond yields declined after German
exports saw in August their steepest drop since January 2009
(http://www.marketwatch.com/story/german-exports-in-steepest-fall-in-almost-7-years-2015-10-08).
The risk-off sentiment was enhanced by downbeat comments on
growth outlook and inflation contained in the minutes from the
European Central Bank's Sept. 3 meeting
(http://www.marketwatch.com/story/ecb-saw-risks-to-inflation-over-the-summer-2015-10-08)
and the Bank of England's October meeting.
The yield on the benchmark 10-year German bond known as the
bund, lost 1.3 basis point to 0.585%.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 08, 2015 17:07 ET (21:07 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.