By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Friday’s Treasury-market moves sum up why bond yields will stay in a tight range until the U.S. presidential election in early November.
Against a backdrop of poor economic news overseas and lackluster corporate earnings stateside, the real question is which political party’s philosophy about money will direct the market in coming years.
The good news for market watchers, at least, is that the U.S. election is in less than two weeks.
The market is “waiting for clarity about who gets the upper hand in the debate over tax and spending policies that have businesses, Wall Street and U.S. households sitting on pins and needles,” said Bill O’Donnell, head of Treasury strategy at RBS. Read wsj.com: Firms hit brakes before fiscal cliff.
He expects the range for benchmark 10-year yields to stay between 1.85% and 1.60% until the election on Nov. 6.
Yields on 10-year notes 10_YEAR -1.97% , which move inversely to prices, fell 3 basis points to 1.79%. A basis point is one one-hundredth of a percentage point. Yields on 30-year bonds 30_YEAR -0.81% declined 3 basis points to 2.95%.
So bond investors with a longer time horizon have to some extent just hit the snooze button.
“There’s little else to say or do and many investors have simply chosen to disengage and de-risk to await the election outcome,” O’Donnell said.
Even a better-than-expected report showing the U.S. economy grew at a 2% pace in the third quarter failed to knock bonds down for more than a few minutes. Read: U.S. economy speeds up in third quarter.
That’s because bond investors are also taking account of the economic doldrums that continue to plague Europe and are bad enough in Asia to push the Bank of Japan to ease more (and more and more). Read: Bank of Japan to unveil big move.
Over in Europe, Standard & Poor’s Ratings Services lowered the rating of BNP Paribas SA FR:BNP -1.43% , and it put the ratings of Credit Agricole SA FR:ACA -1.85% and Societe Generale SA FR:GLE -0.90% on negative watch, noting their exposure to the potential of a more protracted recession in the euro zone. Read: Spain downgrades BNP, other French banks.
Also, unemployment in Spain hit a fresh high at just over 25% as the euro zone’s fourth-largest economy remained mired in recession. The country is still widely expected to ask for a bailout, though maybe not as soon as some have anticipated. Read: Spain unemployment reaches 25%.
For CRT Capital Group strategists, the data “underscores that even when they ask for a bailout, they’ll have an impossible time paying for debt. A 25% unemployment rate and austerity, think about it.”
All through the week, U.S. corporate earnings and lowered outlooks have weighed on investors’ willingness to buy riskier assets like stocks.
Late Thursday, even Apple Inc. AAPL +0.24% failed to live up to expectations, which supported Treasurys overnight.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
