By Min Zeng
The U.S. government bond market strengthened Monday after being whipsawed by the latest comments from President Donald Trump.
In recent trading, the yield on the benchmark 10-year Treasury note was 2.421%, according to Tradeweb, compared with 2.446% Friday. Yields fall as bond prices rise.
Bond yields had risen to 2.469% after Mr. Trump, who starts his first week as U.S. president, promised to cut taxes "massively" for the middle class and companies in a meeting with business leaders. Yields then retreated as he said that the U.S. will impose "major" border taxes if companies move outside the country.
U.S. stocks and crude oil prices fell Monday, a sign investors' risk appetites are dialed back, which also boosted the appeal of haven Treasury bonds.
Mixed policy platform from Mr. Trump may drive more price fluctuation in the bond market, say analysts.
"Uncertainty will be with us for a bit," said Thomas Roth, executive director in the U.S. government-bond trading group at Mitsubishi UFJ Securities (USA) Inc. "We don't know what will be done."
The 10-year yield has jumped from 1.867% settled on Nov. 8, the U.S. election day, as investors expect expansive fiscal policy would generate stronger economic growth and higher inflation. Both factors dent investors' appetites for haven bonds. Inflation chips away bonds' fixed return over time and is a big threat to long-term government bonds.
Yields have pulled back after reaching a two-year high of 2.6% in mid-December as investors fret about the lack of clarity from Mr. Trump. Some investors are concerned that his emphasis of putting America's interest first during his inauguration speech Friday reflect leaning toward trade protectionism, which would hurt U.S. exports and push up prices of imported goods.
Mr. Trump is planning executive actions early in the week on immigration and trade, two White House officials said. Renegotiating the North American Free Trade Agreement with Mexico and Canada was one of Mr. Trump's campaign promises. He is also eyeing a new trade deal with the U.K. as that country follows through with its decision to exit from the European Union.
Mr. Trump's policy details and their effect on the broader economy won't only influence direction of bond yields in coming months, but also the pace of interest rate increases by the Federal Reserve.
Market expectation of tightening policy has been one factor sending bond yields higher. The labor market is approaching full employment, while some inflation indicatorshave reached the Fed's 2% target, which bolsters the central bank's case to raise interest rates.
Fed Chairwoman Janet Yellen signaled last week that interest rates could be raised "a few times a year" through 2019.
Some analysts say bond yields have room to rise and the 10-year yield may reach 3% before the end of year, a level it last traded in early 2014.
New debt sales this week keep the bond market's price strength in check. A $26 billion sale of two-year notes is due Tuesday, followed by $34 billion sale of five-year notes Wednesday and $28 billion sale of seven-year notes Thursday.
This week's key datapoint is the first estimate of the U.S. economic growth during the fourth quarter of last year, due on Friday.
Write to Min Zeng at email@example.com
(END) Dow Jones Newswires
January 23, 2017 11:26 ET (16:26 GMT)
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