Treasuries Hold Gains on Risk-Off Sentiment After Yellen Speaks

  • Yields decline from highest in week after Dudley clarification
  • Ten-year yield climbing from 2.3% mark seen as key reversal

Treasuries rallied amid a risk-off bid throughout markets Monday, holding onto gains after late remarks by Federal Reserve Chair Janet Yellen about the U.S. economy. 

The 10-year Treasury yield fell by two basis points to 2.37 percent at 4:47 p.m. in New York. It dipped below 2.3 percent for the first time this year on Friday after the March jobs report showed a smaller-than-forecast increase in nonfarm payrolls. The move wasn’t sustained as the report also showed an unexpected drop in the unemployment rate to lowest since 2007, and yields accelerated higher after New York Fed President William Dudley said any pause in rate hikes would likely be short-lived.

The 10-year break-even rate, a market gauge of inflation expectations, dropped to 1.93 percentage points, the lowest on a closing basis since mid-December. The dollar erased earlier gains. The Chicago Board Options Exchange Volatility Index closed at the highest level of 2017.

The U.S. economy’s productivity growth has been very disappointing, and potential growth is probably a bit less than 2 percent now, Yellen said Monday at the University of Michigan. The lackluster growth in gross domestic product is stunning given the number of jobs added across the country, she said.

  • For Treasury yields, and the five-year maturity in particular, Friday’s price action “had all of the fingerprints of an intra-range blow-off low,” Citigroup Inc. strategist William O’Donnell said in note
  • Independent strategist Marty Mitchell said “the key reversal in the bond market was a negative development and suggests that a deeper correction is probable as market participants attempt to work off the overbought momentum conditions”
  • Monday’s $24 billion three-year Treasury note sale drew a yield of 1.525 percent, with the bid-to-cover ratio dropping to 2.62, the lowest since July 2009
  • Major reports this week include March PPI and preliminary April U. of Mich. Consumer Sentiment April 13, March CPI and retail sales on April 14, coincide with Sifma-recommended market close for USD-denominated cash on April 14 for Good Friday
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