Treasury prices fell slightly on Monday, pushing yields higher, after a rally in risk assets sapped demand for haven assets like government paper ahead of a week of speeches by senior Federal Reserve officials.
The 10-year Treasury note yield
was up 2.5 basis points to 3.070%, its biggest one-day rise since Nov. 2. The 2-year note yield
sensitive to shifting expectations for Fed interest rates, picked up 2.3 basis points to 2.837%, while the 30-year bond yield
added 1.5 basis points to 3.320%. Bond prices move in the opposite direction of yields.
Stocks rebounded after logging the worst Thanksgiving week since 2011. The SP 500
and the Nasdaq Composite
were set to close sharply higher on Monday.
See: Stock-market investors are sending Fed’s Jerome Powell a crystal-clear message
“The belly-led selloff in Treasuries is once again taking its cue from the equity market,” said Jon Hill, a fixed-income strategist for BMO Capital Markets, in a Monday note, referencing the middle, or belly, of the yield curve.
Nonetheless, the Treasury Department saw solid appetite for $39 billion of 2-year notes, a maturity that tends to be the most vulnerable to the Fed’s rate increases. Analysts were nervous the auction would struggle to attract buyers ahead of a raft of speeches by senior Fed officials that could give more clarity on the Fed’s hiking path in 2019.
Marktet participants will particularly watch Fed Chairman Jerome Powell and his No. 2 Richard Clarida after they had made nods to global growth concerns recently, which some viewed as dovish signals. But others say the low unemployment rate and a solid U.S. economy could keep the Fed raising rates at a steady trajectory well into next year.
Powell is slated to deliver a highly anticipated speech on Wednesday. Ahead of that talk, Clarida will talk about monetary policy on Tuesday.
“Market participants read between the lines over the past couple of weeks and took Fed acknowledgments of downside risks to the global economy as ‘blinking.’ Over the next two weeks, Fed officials and market participants may have to engage in a stare down,” wrote Stephen Stanley, chief economist for Amherst Pierpont Securities.
Read: Here’s what Fed officials are saying about the interest-rate outlook
Elsewhere, Italian government bonds saw a sharp rally after reports said Italy’s governing coalition of the 5 Star Movement and the League party may reduce next year’s deficit target to as low as 2% of gross domestic product, Reuters reported. The initial budget outline had proposed a target of 2.4% of GDP.
Trimming the deficit goals could avert a standoff between Rome and Brussels over the expansionary fiscal plan. The 10-year Italian government bond yield
fell 14.5 basis points to 3.269%, according to Tradeweb data.
Also check out: Why investors are cheering Italy, Brexit headlines for a change — though it might not last
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Sunny Oh is a MarketWatch fixed-income reporter based in New York.
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