Treasurys Steady After Recent Gains
By Sam Goldfarb
U.S. government bonds were holding in a tight range Monday after strengthening last week in response to soft inflation data and signs the Federal Reserve could slow the pace of its interest-rate increases.
In recent trading, the yield on the 10-year Treasury note was 2.327%, according to Tradeweb, compared with 2.319% Friday. Yields rise when bond prices fall.
Bond prices got a boost last Wednesday when Fed Chairwoman Janet Yellen said in congressional testimony that the central bank could reassess its plan to raise interest-rates if inflation remains stuck below its 2% annual target. On Friday, that message was reinforced by a report showing a further slowdown in inflation.
While the Fed has raised interest rates twice this year, investors are now increasingly skeptical that there will be another rate increase this year.
Fed-fund futures, a popular derivative market for hedge funds and money managers to bet on the Fed's policy outlook, recently suggested 48% odds that the Fed will raise rates again by its December meeting, according to CME Group. The probability was 59% a week ago.
Investors are "continuing trying to process what happened last week with the combination of the inflation data and what we heard from Yellen in Washington," said Thomas Simons, senior vice president and money-market economist in the fixed-income group at Jefferies LLC.
This week is relatively light on economic data, and no Fed officials are scheduled to talk ahead of their July 25-26 policy meeting.
One major event is Thursday's European Central Bank meeting, which will be closely watched for signs that the ECB is planning to scale back its monetary stimulus.
Concern among investors that major central banks outside of the U.S. could shift to tighter monetary policy was a big factor driving up bond yields before last week.
The one session last week when the 10-year yield did rise was Thursday following a report from The Wall Street Journal that ECB President Mario Draghi is scheduled to address the Federal Reserve's Jackson Hole conference in August.
Mr. Draghi is expected to give further signs of the ECB's growing confidence in the eurozone economy and its reduced need for monetary stimulus, the Journal reported.
Write to Sam Goldfarb at [email protected]