Treasury Prices Drop as Stock Markets Rebound

Treasury prices declined Tuesday, pushing yields higher, as global stock markets rebounded from Monday’s rout and investors sold bonds in favor of riskier assets.

The bond selloff started overnight as China’s stock market finished lower, albeit off its lows for the session after Monday’s meltdown and continued in early New York trading hours, ahead of a two-day Federal Reserve meeting that could offer clues on the timing of the first interest-rate increase in nearly a decade.

The Fed has maintained a data-dependent approach, monitoring recent economic reports for signs of a consistent recovery in the labor market and a move toward its 2% inflation target.

“While the labor market recovery is still on track, we are not close enough to the inflation target, ”said Kirk Barneby, portfolio manager of the Centre Active U.S. Treasury Fund at Centre Funds.

In their policy statement due at 2 p.m. on Wednesday the members of the Federal Open Market Committee are expected to “reaffirm the need to raise rates at some point” but wouldn’t “lock themselves in a specific liftoff date,” Barneby added.

The risk-on sentiment fueled by the stock market rebound was the main force moving the Treasury market on Tuesday, analysts noted.

The selling persisted even as the Case-Shiller home-price index came in slightly weaker than expected, a U.S. consumer confidence reading came in significantly below expectations and Markit’s purchasing managers index showed that services sector growth strengthened only slightly in July.

via MarketWatch

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