US bond yields fell overnight in reaction to Trump's abrupt dismissal of FBI Director James Comey late Tuesday. It drew a storm of criticism, mostly from Democrats, that the move was aimed at blunting the agency's probe into the Trump presidential campaign's possible collusion with Russia to sway last year's election. The yield drop faded following below-average investor demand at a $23 billion 10-year note sale with benchmark yields retesting a five-week high reached on Tuesday.
"It's all taken in stride at this point," Bill Northey, chief investment officer at the private client group of US Bank in Helena, Montana, said of Comey's firing. "This is about the Fed and inflation levels." Boston Fed President Eric Rosengren said on Wednesday the central bank should raise rates three more times in 2017 and start reducing its $4.5 trillion balance sheet.
Interest rate futures implied traders saw an 83 percent chance the Fed would raise its benchmark overnight rate by a quarter of a percentage point to a range of 1.00 percent to 1.25 percent at its June 13-14 policy meeting, compared with 88 percent on Tuesday, according to CME Group's FedWatch program. Earlier Wednesday, the Labor Department said US import prices grew 0.5 percent in April, which was above forecast and marked a fifth straight month of increases.
Competition from a growing pipeline of higher-yielding corporate bonds also put upward pressure on Treasury yields. Companies have raised more than $23 billion with investment-grade bonds so far this week, according to IFR, a Thomson Reuters unit. The benchmark 10-year Treasury yield touched 2.416 percent, a five-week high already struck on Tuesday. It was last at 2.412 percent, up half a basis point on the day. The 30-year bond yield was flat at 3.040 percent, holding below 3.047 percent set on Tuesday, which was its highest level since March 31. The Treasury Department will complete May's $62 billion refunding with a $15 billion sale of 30-year bonds on Thursday following a cool reception to the three-year and 10-year auctions.
Copyright Reuters, 2017