MW: Treasury yields rise as Greek negotiations linger
Treasury yields rose on Friday as traders continued to watch lingering negotiations between Greece and its creditors that failed to produce a deal.
The Eurogroup of eurozone finance ministers will hold a meeting on Saturday in an attempt to reach a pact ahead of a Tuesday deadline when Greece must pay back 1.54 billion euros ($1.73 billion) to the International Monetary Fund.
The stakes are high, as on Thursday, German Chancellor Angela Merkel said a deal has to be on the table before financial markets open Monday, while the IMF warned that Greece will immediately be in arrears on its debt if it doesn’t make its Tuesday payment.
These developments “would normally have a bullish flight-to-quality impact on the Treasury market,” said James Kochan, chief fixed-income strategist at Wells Fargo Funds Management.
But Treasury yields rose, as the market saw a bout of selling early Friday morning, after being under pressure most of the week, while stocks also traded higher. Bond yields rise when prices fall and vice versa.
The yield on the 10-year Treasury TMUBMUSD10Y, +2.04% rose 7.1 basis point to 2.464%, according to Tradeweb. The two-year yield TMUBMUSD02Y, +4.04% increased 2.4 basis point to 0.712% and the yield on the 30-year TMUBMUSD30Y, +1.27% Treasury rose 6.1 basis points to 3.217%.
The continuing bond selloff during the week can partially be attributed to better-than-expected economic data that have been coming in over the week, in personal spending and in the housing sector.
Shifting bond-trading strategies may be another factor influencing moves. “Trading strategy in the Treasury market has shifted from ‘buying the dips’ to ‘selling the rallies’, as investors anticipate more news coming out of Greece over the next few days,” Kochan said.
Friday could be the biggest trading day of the year for the equity market, due to the annual removing and adding of stocks on Russell indexes. But bond markets were sluggish, with thin volumes.
Traders anticipate index-extension buying at the end of the month. “Said buying could skew otherwise quiet markets to the upside,” Guy LeBas, chief fixed income strategist at Janney said in a note.
While both European and U.K. stocks dropped, government bond yields were also soaring in the eurozone’s core, with the yield on the German 10-year TMBMKDE-10Y, +6.26% known as the bund, rising 7.8 basis points to 0.941%. Meanwhile, the Greek 10-year yield fell 11.2 basis points to 10.885%, after plunging 194.9 basis points earlier this week, while other yields in the eurozone’s periphery were down between 0.5 to two basis points.
