Photographer: J. David Ake/AP

Treasuries Rally After U.S. Drops Huge Non-Nuclear Bomb on ISIS

Updated on
  • U.S. government bonds rallying for longest stretch since July
  • Geopolitical risks, Trump comments spur safe-haven demand

Treasuries rallied, reversing earlier declines, after the U.S. dropped the largest non-nuclear bomb in its arsenal on an Islamic State target in Afghanistan.

The 10-year U.S. yield fell about two basis points to 2.22 percent at 1:10 p.m. in New York, remaining above its session low reached in early U.S. trading. The yield curve from five to 30 years steepened, while the 10-year breakeven inflation rate pared its gain.

Treasuries are poised to rally for the fifth straight week, the longest stretch since July, with yields within the selloff zone created after U.S. Election Day on Nov. 8. JPMorgan Chase & Co. technical strategists said the 10-year yield has the potential to fall to 1.88 percent on a bullish break of 2.15 percent, though they expect support levels to hold.

U.S. forces in Afghanistan deployed the military’s largest non-nuclear bomb, a GBU-43, on a IS target in Afghanistan, according to U.S. Central Command. It comes less than a week after the U.S. launched 59 Tomahawk cruise missiles against the Syrian government, sparking geopolitical tensions that have largely driven Treasuries’ gains.

  • Gains cement weekly rally into Thursday’s Sifma-recommended 2pm close of trading for USD-denominated cash fixed income (and full close Friday)
  • Trump added to the rally on Wednesday by saying “I do like a low-interest rate policy, I must be honest with you,” in an interview with WSJ; also said he remains open to keeping Fed Chair Janet Yellen on once her term is up next year
  • Japanese investors sold 2.18 trillion yen of foreign bonds in the week ended April 7, the largest net sale in two years
  • Initial jobless claims came in at 234,000, beating the estimate of 245,000
  • High-frequency indicators like TY dollar-weighted put/call ratios are approaching overbought zones, and relative to cyclically sensitive benchmarks such as Philadelphia Semiconductor Index, Treasuries are near low end of a well-defined range in place since 2010, JPM said
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