Muted demand for US safe-haven bonds as Syria fears wane

16 Apr, 2018

Yields, which move inversely to prices, rose overnight and through Monday morning, despite the weekend's turmoil in which US, British and French forces fired more than 100 missiles on Syria.

"You'd think ex-ante some of these geopolitical risks that we've seen recently would be more supportive of Treasuries generally," said Jonathan Cohn, interest rate strategist at Credit Suisse in New York. "But one could suppose that markets are discounting the possibility of further escalation in the US-Russia-Syria conflict."

The strike, the biggest intervention by Western powers against Syrian President Bashar al-Assad, was a response to a poison gas attack that killed dozens.

The yield on the 10-year benchmark government bond rose to 2.851 percent from its last close at 2.828. This steepened the yield curve slightly from Friday when it hovered at its lowest in over a decade as short-dated yields rose on expectations of further US interest rate hikes from the Federal Reserve.

On Monday, the two-year Treasury yield rose to an intra-day high of 2.394 percent, its highest in nearly a decade, on the view the US-led strike would not escalate. Market analysts also cited technical factors.

"One thing we see with clients is that anytime you get the 10-year back to 2.85 to 2.90 percent, there tends to be buying. And then, anytime you get close to 2.75, we start to see some selling," said Tom di Galoma, managing director at Seaport Global Holdings in Memphis, Tennessee.

The 10-year yield has not risen above 3.0 percent since January of 2014.

Gains on Wall Street also pressured the bond market. The Dow Jones Industrial Average edged up 0.6 percent while the S&P 500 Index was up 0.4 percent.

"Rates have been trading around equities more than some fundamental drivers that we had been highlighting earlier this year," said Cohn.

US Commerce Department data showed retail sales in March rose 0.6 percent, after three months of declines. Di Galoma noted that "Retail sales has been a volatile number with the weather," with cold temperatures keeping shoppers away from stores.

Copyright Reuters, 2018
 

 

 

 

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