October 4, 2016 / 7:16 PM / 10 months ago

TREASURIES-Yields near two-week highs after ECB taper report

3 Min Read

(Recasts with market move, adds ECB report; quotes, updates
prices)
    * Yields rise after report on ECB tapering spooks investors
    * Friday's jobs report for September in focus
    * Yellen speech next week watched for rate view

    By Karen Brettell
    NEW YORK, Oct 4 (Reuters) - U.S. Treasury prices dropped and
yields jumped to almost two-week highs after a report that the
European Central Bank may taper asset purchases spooked
investors.
    Bloomberg reported that ECB policymakers were building
consensus that quantitative easing would need to be wound down
gradually when the central bank decides to end the program.
    Investors are increasingly skeptical that central bank
attempts to regenerate growth and inflation will be effective,
and worry that asset purchase programs are creating bubbles and
distorting market fundamentals.
    "What the market has been telling you for the last
month-and-a-half is that central bank policy has run out of room
and they need something else to transition to because it's not
working, and the question is what that is going to be," said Tom
Tucci, head of Treasuries trading at CIBC in New York.
    Benchmark 10-year notes fell 15/32 in price to
yield 1.68 percent, the highest since Sept. 21.
    Since Friday, there has been heavy buying of "put" options
on 10-year notes, contracts that gain in value if Treasury
prices fall, said CIBC's Tucci.
    The buying comes ahead of Friday's highly anticipated
September U.S. jobs report a speech by Fed Chair Janet Yellen on
Oct. 14 at a Boston Fed economics conference.
    Employers are expected to have added 175,000 jobs in
September, according to the median estimate of 100 economists
polled by Reuters. 
    Investors are expected to focus on whether August's
weaker-than-expected 151,000 jobs gains will be revised upward. 
    Yellen's speech the following Friday will be watched for
signals of an impending interest rate hike.
    "I think the most important thing in the next couple of
weeks is Yellen's speech at the Boston Fed economics
conference," said Lou Brien, a market strategist at DRW Trading
in Chicago, noting that the conference was used by former Fed
Chair Ben Bernanke in 2010 to indicate a new round of stimulus
was coming.
    It may be Yellen's last chance before the Fed's November
meeting to indicate if a hike is likely that month.
    Traders are pricing in a 13 percent chance that the Fed will
raise rates in November and a 63 percent chance of an increase
in December, according to the CME Group's FedWatch Tool.
    Richmond Federal Reserve President Jeffrey Lacker said on
Tuesday said there was a strong case for raising interest rates.
 

 (Reporting by Karen Brettell; Editing by Chris Reese and
Richard Chang)

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