Treasurys see muted trade as speculation over Fed chair ratchets up
Treasury yields were little changed on Wednesday, recovering after slipping early in the session, as investors speculated on who might take over from Federal Reserve Chairwoman Janet Yellen when her term ends early next year.
What did yields do?
The 2-year note yield TMUBMUSD02Y, +0.28% was steady at 1.479%, compared with its late Tuesday level.
The benchmark 10-year Treasury note yield TMUBMUSD10Y, +0.23% was unchanged at 2.332%, while the 30-year bond yield TMUBMUSD30Y, +0.28% traded up by a basis point at 2.878%.
Bond prices move inversely to yields.
What’s driving markets?
Investors have said a tug of war between former Fed. Gov Kevin Warsh and Fed. Gov Jerome Powell for the candidacy of the Fed Chair is contributing to the lack of direction in the bond market. A more hawkish Fed boss could push for faster rate hikes which would hurt Treasurys, but in the absence of stronger inflation, long-dated government paper may retain its value.
What are market participants saying?
“Kevin Warsh was seen as a ‘hawk’ in view of his historical opposition to Ben Bernanke’s QE programs, a position he had shared publicly in various editorials. On the other hand, traders believe that Powell is more ‘dovish’,” wrote Thierry Wizman, global currencies and interest rates strategist for the Macquarie Group.
“Trading the new chair takes a lot of time. Unfortunately, we’re in this instantaneous reaction period because of split governments and split personalities, so the market’s trained to think quickly. Even if the actual event takes far longer than the market calculates into their process,” said Jim Vogel, an interest-rate strategist at FTN Financial, explaining why investors keen interest in the Fed chair horse race may prove premature.
What are bond traders watching?
Fed Vice Chair Stanley Fischer said recent weakness in inflation would eventually give way in an interview on Bloomberg TV. He added that the pace of monetary tightening was “OK, it is not terrific.” Fed Chairwoman Janet Yellen gave a speech in the late-afternoon but didn’t touch on monetary policy.
What data are on investors’ radar?
- ADP’s private-sector jobs report for September showed 135,00 jobs were created in September, compared with 228,000 in the previous month, showing some signs of the effect of Hurricanes Irma and Harvey on job growth. Investors are awaiting the more closely followed nonfarm-payrolls report on Friday.
- The ISM’s nonmanufacturing index in September hit a 12-year high of 59.8. Any number over 50 is considered a positive for the economy.
What did other assets do?
The 10-year German government bond yield TMBMKDE-10Y, +0.00% was steady at 0.452%.
The Dow Jones Industrial Average DJIA, +0.09% and the S&P 500 index SPX, +0.12%notched fresh records. Gold GCZ7, -0.01% snapped a three-session skid lower. The U.S. dollar also slipped, down 0.2%, as measured by the ICE U.S. Dollar IndexDXY, +0.02% which gauges the buck against a half-dozen rival currencies.