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U.S. Government Bonds Pull Back

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05/19/2017 | 05:05pm CEST
By Sam Goldfarb 

U.S. government-bond prices fell Friday as investors digested new corporate bond supply and continued to recover from political headlines that had sparked a large rally earlier in the week.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.259%, according to Tradeweb, compared with 2.233% Thursday. Yields rise when bond price fall.

Treasurys have rallied this week in response to a series of damaging reports related to President Donald Trump in the aftermath of his decision to fire FBI Director James Comey. Investors generally seek safer assets in times of political uncertainty. They are also increasingly concerned that Mr. Trump could have trouble pushing through policies such as tax cuts and infrastructure spending that had been expected to stimulate economic growth.

Bonds, though, began to pull back Thursday and took another leg down Friday, aided by a large bond sale from Qualcomm Inc. backing its purchase of NXP Semiconductor NV. Firms and banks underwriting corporate bond deals typically sell Treasury debt to hedge against unwanted interest-rate swings.

"If we can just stop the news out of Washington for a period there's room for an unwinding of the recent risk-off flows," said John Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, N.J.

Among the fallouts of this week's political turbulence has been a decline in investors' expectations that the Federal Reserve will raise interest rates next month.

Fed-funds futures, used by investors to bet on the Fed's monetary policy outlook, recently showed 74% odds that the central bank would raise short-term interest rates by its June 13-14 meeting, according to CME Group. Those odds were up from 65% Wednesday but were down from a high of 88% last week.

Higher interest rates from the central bank reduce money supply in the broader economy and shrink the value of outstanding bonds.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

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