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U.S. Government Bonds Slip On European Growth and Debt Supply

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11/09/2017 | 06:27pm CET
By Daniel Kruger 

U.S. government bonds declined alongside European sovereign debt after forecasts that growth in the euro region will be faster than previously expected.

The yield on the benchmark Treasury 10-year note rose to 2.343%, according to Tradeweb, from 2.325% Wednesday. Bond yields rise as prices fall.

The European Commission revised previous growth forecasts for euro-area economies, boosting its projection for economic output this year to 2.2% and by 2.1% in 2018, versus expectations for a 1.7% increase this year and 1.8% next year. That led investors to sell European government debt, with Treasurys falling in concert.

Anticipation of a $15 billion offering of 30-year bonds also weighed on prices for longer-term securities, as investors prepared for the new supply. The Treasury sold three-year notes on Tuesday and 10-year debt on Wednesday. The additional longer-term securities move may blunt some of the momentum that has built toward a flattening of the yield curve.

While the 10-year Treasury yield has fallen in the past two weeks from a recent high of 2.452%, shorter-term yields have been pushed higher as investors expect the Federal Reserve to continue raising interest rates at least through next year, and as the Treasury is planning not to extend the weighted average maturity of the additional debt analysts anticipate it will have to sell as the budget deficit begins to rise.

"We've had a huge flattening trade," said Larry Milstein, head of Treasury trading at R.W. Pressprich & Co. "A little bit of a reversal that's supply driven makes sense."

Write to Daniel Kruger at [email protected]

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