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Credit Markets: Treasury Prices Pull Back -- WSJ

20 May 2017 6:33 am
By Sam Goldfarb 

U.S. government-bond prices edged down Friday as investors digested new corporate bond supply and continued to recover from political headlines that had sparked a large rally earlier in the week.

The yield on the benchmark 10-year Treasury note settled at 2.243%, compared with 2.233% Thursday. Yields rise when bond price fall.

Friday's price declines followed a similar move Thursday, as investors tried to move past a series of damaging reports related to President Donald Trump in the aftermath of his decision to fire FBI Director James Comey. Those developments led on Wednesday to the biggest one-day decline in the 10-year yield since last June as investors flocked to safer assets amid heightened political uncertainty.

"If we can just stop the news out of Washington for a period, there's room for an unwinding of the recent risk-off flows," said John Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, N.J.

Friday's move was aided by an $11 billion bond sale Qualcomm Inc. backing its purchase of NXP Semiconductor NV. Firms and banks underwriting corporate bond deals typically sell Treasury debt to hedge against unwanted interest-rate swings.

One fallout from this week's political turbulence was some wavering in investors' confidence that the Federal Reserve will raise interest rates next month. The Fed has sometimes been hesitant to raise interest rates during periods of volatility. Yet there were signs by Friday of calm returning to the markets, with stocks rising along with bond yields for the second consecutive session.

Fed-funds futures, used by investors to bet on the Fed's monetary policy outlook, showed 74% odds that the central bank would raise short-term interest rates by its June 13-14 meeting, according to CME Group. Those odds were down from 88% on May 10 but up from 65% on Wednesday.

Higher interest rates from the central bank reduce money supply in the broader economy and shrink the value of outstanding bonds.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

May 20, 2017 02:33 ET (06:33 GMT)

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