U.S. Government Bond Selloff Resumes


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By Sam Goldfarb

The U.S. government bond market resumed its selloff Wednesday as traders reacted to surging oil prices and solid U.S. economic data.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.379%, according to Tradeweb, compared with 2.305% Tuesday.

Government bonds across the globe have been under severe pressure since Donald Trump's victory in the Nov. 8 presidential election, as investors respond to the increased chances of fiscal stimulus next year. While the bond rout had taken a pause in recent days, it picked up again overnight as oil prices jumped on hopes that OPEC was close to reaching a deal to curb oil production.

Rising oil prices usually sap demand for government debt by increasing investors' appetite for riskier assets such as stocks and by lifting inflation expectations.

Adding to the selling pressure Wednesday was a report on private sector payrolls that came in much better than analysts had expected and another release that showed healthy gains in Americans' incomes and household spending.

The reports buttressed a growing conviction among investors that the U.S. economy is on solid footing even without the help of the tax cuts and infrastructure spending that many are now expecting thanks to Mr. Trump's victory.

In general, faster economic growth should lead to higher inflation, which in turn could lead to a faster pace of interest-rate increases by the Federal Reserve, investors and analyst say.

Because low oil prices have helped keep a lid on inflation over the past couple of years, a reversal in that market would create even more momentum behind rising bond yields.

"You are in an environment which overall makes the Treasury market vulnerable," said Anthony Karydakis, chief economic strategist at Miller Tabak.

With investors already geared for higher growth and inflation, the bond market is poised for large selloffs anytime data or other developments confirm their views, he added.

One possible source of demand for bonds Wednesday would be the typical buying that occurs at the end of each month as newly minted bonds replace maturing debt in bond indexes and fund managers who track those indexes adjust their portfolios accordingly.

However, some investors already made that trade Tuesday to avoid potential prices swings on the final day of the month.

Write to Sam Goldfarb at sam.goldfarb@wsj.com


  (END) Dow Jones Newswires
  11-30-161038ET
  Copyright (c) 2016 Dow Jones & Company, Inc.



This article appears in: Energy , Real Estate


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