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BOND REPORT : Treasury Yields Turn Lower After ECB Drops Easing Bias

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03/08/2018 | 07:10am CEST

By Sunny Oh

Investors remain jittery about impending tariff announcement

Treasury yields turned lower on Thursday after the European Central Bank dropped language saying it would increase its asset purchases if the economic outlook weakened.

The central bank left interest rates unchanged, in line with market expectations.

What are Treasurys doing?

The 10-year Treasury note yield fell 2 basis point to 2.8626%, according to Tradeweb data. The 2-year note yield fell 1.6 basis points to 2.237%, while the 30-year bond rate shed 3 basis points to 3.124%.

Bond prices move in the opposite direction of yields.

What's driving Treasurys?

The ECB kept rates unchanged and said it would extend its asset purchases beyond September if necessary. The ECB also kept its 2018 and 2020 inflation forecasts unchanged. But it removed a line that the central bank would increase the pace of its bond-buying if the outlook deteriorated. ECB President Mario Draghi is answering questions from the media at a news conference.

Live blog: ECB moves step closer to ending QE

Trading in U.S. government bonds is influenced by the ECB's actions as investors have blamed easy monetary policy in Europe and Japan for drawing foreign investors to U.S. shores, pushing down long-term bond yields.

Analysts said that tariff announcements on steel and aluminum expected to be signed later on Thursday (https://www.nytimes.com/2018/03/07/us/politics/trump-steel-aluminum-tariffs.html) along with February's jobs report could keep traders from placing large trades until they received clarity from both events. Economists surveyed by MarketWatch expect average hourly earnings to rise by 0.2%, and for the economy to add 220,000 jobs.

Also check out: Here's the case for an unexpected tweak to the ECB's policy guidance

What did market participants say?

"US rates have yet to respond to the ECB's slowly changing guidance on quantitative easing. Draghi recommitted to the current program that runs through September, but the council took out other guidance in support of extraordinary easing. ECB leadership did recommit to reinvesting maturing assets, though, 'as long as necessary.' EU traders that expected no change in guidance at all until April immediately sold EU sovereigns and bought euros," said Jim Vogel, interest-rate strategist at FTN Financial.

What else is on investors' radar?

Jobless claims for the week ended March 3 climbed 21,000 to 231,000 claims , above the MarketWatch economists' forecast of 220,000 claims.

What other assets are on the move?

The German 10-year government bond yield was also volatile, falling 5 basis points from its intraday high to 0.6490%. German bonds serve as proxy for the eurozone's economic health and its viability.

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