By William Watts, MarketWatch
Clinton news sparks modest turn in risk sentiment as stocks sink
Treasurys enjoyed a brief rebound Friday, pulling yields back from highs, after the Federal Bureau of Investigation said it would review newly discovered emails in connection to its investigation of Democratic presidential nominee Hillary Clinton's private computer server.
The news sparked a modest flight to safety into government bonds as equities turned south. Other haven assets, such as gold (http://www.marketwatch.com/story/gold-futures-drift-lower-ahead-of-us-gdp-reading-2016-10-28), also rallied.
Yields, which move in the opposite direction of prices, still rose sharply this week due to growing worries over the potential for inflation and uncertainty about the outlook for monetary stimulus.
The Clinton news is "clearly not positive for risk sentiment right now," said Aaron Kohli, interest-rate strategist at BMO Capital Markets. "The market hates uncertainty...and it's just difficult to predict what impact these things will have" over the longer run.
The yield on the 10-year note ended the day up less than half of a percentage point at 1.847%, its highest close since May 27 but off its session high above 1.87%. For the week, the yield rose nearly 11 basis points.
Read: Here's why bond yields are rising around the world (http://www.marketwatch.com/story/heres-why-bond-yields-are-rising-around-the-world-2016-10-27)
FBI Director James Comey told Congress the review was occurring (http://www.marketwatch.com/story/fbi-restarting-probe-into-hillary-clintons-emails-2016-10-28) after finding more messages that "appear to be pertinent." Comey earlier this year said charges weren't appropriate following its investigation into Clinton's use of a private email server while serving as secretary of state.
Stocks turned negative (http://www.marketwatch.com/story/us-stock-futures-jittery-ahead-of-key-gdp-data-2016-10-28) after the news and ended the day slightly lower.
Financial markets have largely priced in a Clinton victory, Kohli said. It is unclear how much the new investigation could unsettle the race, he said, noting that investors often tend to overreact to developments. The probe could have a more lasting effect on financial markets if polls begin to tighten ahead of Election Day on Nov. 8, he said.
Read:FBI probe into new emails hit Wall Street in 4 key ways (http://www.marketwatch.com/story/3-ways-a-fresh-fbi-probe-into-clinton-emails-hit-wall-street-2016-10-28)
Earlier, the Commerce Department said U.S. gross domestic product expanded at a 2.9% annual clip (http://www.marketwatch.com/story/gdp-hits-29-in-biggest-gain-since-mid-2014-2016-10-28) in the third quarter, in line with forecasts, but up from a 1% pace of growth over the first half of the year.
The yield curve--the differential between short- and longer-dated yields--continued to steepen. The yield on the two-year note fell 2.4 basis points to 0.861%. The yield on the 30-year Treasury bond rose 1.4 basis points to 2.615%. For the week, the two-year note rose 3.3 basis point, while the 30-year, or long bond, picked up 12.2 basis points.
The benchmark 10-year yield, used to guide mortgage rates and other lending rates, jumped this week. It contributed to a significant steepening of the yield curve, on Thursday in particular, amid a global bond selloff tied to mounting fears about inflation and concerns that extraordinary monetary stimulus by major central banks is nearing the end of its run.
The Federal Reserve is widely expected to leave rateson hold when it meets Nov. 1-2, but expectations favor a rate increase when policy makers convene again in December.
"Most investors with whom we speak already expect the Fed to hike in December. For the market-implied probability of a December hike to move closer to 100%, and policy-sensitive yields to move higher, risk events and economic data--both at home and abroad--need to pass without incident," wrote analysts at Morgan Stanley, in a Friday note. "In addition, financial conditions need to remain loose."
(END) Dow Jones Newswires
October 28, 2016 16:52 ET (20:52 GMT)
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