February 12, 2019 / 7:32 PM / in 2 months

TREASURIES-Yield up on hopes of averting govt shutdown, before data

 (Adds comment by Fed's Powell, updates prices)
    * Tentative pact to avert shutdown boosts risk appetite
    * Consumer price data on Wednesday in focus for rate outlook

    By Karen Brettell
    NEW YORK, Feb 12 (Reuters) - U.S. Treasury yields rose on
Tuesday after lawmakers reached a tentative pact to avert
another government shutdown, and as investors focused on
inflation data expected on Wednesday for further signals about
interest rate policy.
    The agreement in principle to avoid another shutdown helped
boost stock markets and reduce demand for safe-haven bonds,
though President Donald Trump said he has yet to decide whether
to support the agreement.                          
    There was also optimism that the United States would reach a
trade deal with China ahead of high-level trade talks as the
world's two largest economies attempt to hammer out a deal ahead
of a March 1 deadline and avoid another escalation of tariffs.
            
    For the most part, however, investors were focused on
Federal Reserve policy as they weighed still-solid U.S. economic
growth, albeit with low inflation, against a worsening
international economic picture.
    “The market is really trying to figure out which side of
that drives the market,” said Brian Daingerfield, a macro
strategist at NatWest Markets in Stamford, Connecticut.
    Benchmark 10-year yields             have fallen from 2.799
percent on Jan. 18 and are down from a seven-year high of 3.261
percent in October as investors price in a far more dovish
Federal Reserve.
    The yields bounced off technical support at around 2.62
percent on Friday. On Tuesday, the notes fell 7/32 in price to
yield 2.686 percent.
    Consumer price data due on Wednesday will be the next
indication of whether prices are rising, which could spur the
U.S. central bank to resume raising rates.
    “Inflation will be an extremely important reading for the
Fed in terms of their ability to stay patient. That’s very much
tied to inflation staying low,” said Daingerfield.
    Retail sales data for December on Thursday and consumer
sentiment data on Friday were also in focus for further signals
about the U.S. economy's strength.
    Fed Chairman Jerome Powell said on Tuesday that he does not
see the risk of a U.S. recession as elevated.             

 (Editing by Nick Zieminski
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