By Sam Goldfarb
U.S. government bonds strengthened Monday, showing some signs of positive momentum after three consecutive weeks of price declines.
In recent trading, the yield on the benchmark 10-year Treasury note was 2.334%, according to Tradeweb, compared with 2.359% Friday. Yields fall when bond prices rise.
Bonds have sold off sharply since Donald Trump's victory in the Nov. 8 presidential election, as investors respond to the increased chances of fiscal stimulus next year.
Investors have calculated that large tax cuts, increased deficit spending, and the rollback of regulations should boost economic growth in the coming years, leading to higher inflation and a faster pace of interest-rate increases by the Federal Reserve.
If their predictions prove accurate, Mr. Trump's victory could represent a turning point for bond yields, which reached record lows earlier this year amid concerns that the world was stuck in a low-growth, low-inflation environment, accompanied ultraloose monetary policies from central banks.
Still, some investors and analysts have cautioned that the selloff may be due for a pause given the unpredictable nature of government policy.
In a sign that buyers might be returning to the market, an auction of seven-year Treasury notes drew robust demand Wednesday, after sales of two-year and five-year notes met with soft receptions earlier in the week. The highlight was 72.7% indirect bidding, the highest on record, according to Jefferies LLC. The category is a proxy of demand from foreign investors including both private investors and foreign central banks.The yield on the 10-year note reached 2.417% Wednesday morning, its highest level since July 2015, but declined immediately following the auction, according to Tradeweb.
As bonds continued to strengthen Monday, it is looking like bond yields may have reached "a near-term top" heading into the seven-year auction, said John Herrmann, rates strategist at MUFG Securities in New York.
Eventually, though, Mr. Herrmann still expects yields to climb higher as the economy picks up strength next year.
Apart from the outlook for fiscal policy, economic data released in November has pointed to a brighter growth outlook and added to the selling in the bond market.
Among the highlights have been the best two-month stretch of retail sales in at least two years, the fastest pace of housing starts since 2007, and much better-than-expected demand for long-lasting manufactured goods.
Any rally in the bond market this week will be tested by a fresh batch of major economic data, including the Fed's preferred measure of inflation Wednesday and employment numbers Friday.
Write to Sam Goldfarb at firstname.lastname@example.org
(END) Dow Jones Newswires
November 28, 2016 11:12 ET (16:12 GMT)
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