U.S. Government Bonds Decline as Investors Weigh Slowing Growth
U.S. government bond prices fell Friday as investors eyed how policy makers around the world are approaching signs of slowing growth.
The yield on the benchmark 10-year note rose, settling at 1.540% from 1.534% Thursday. The 30-year Treasury yield was at 2.001%, up from its record low of 1.985%.
Yields, which rise as bond prices fall, climbed on a report Friday that Germany may be willing to increase government spending if its economy enters a recession. The country’s economy contracted in the second quarter and some economists predict it will shrink again in the third quarter, an event that would meet some definitions of a recession.
The yield on 10-year German government debt rose Friday to negative 0.689% from negative 0.693%.
European Central Bank official Olli Rehn said Thursday that the central bank should consider at its meeting next month a broad approach to boosting growth.
“When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker,” Mr. Rehn said.
Investors are also looking ahead to next week when Federal Reserve Chairman Jerome Powell is scheduled to speak at the central bank’s annual retreat in Jackson Hole, Wyo. Central-bank officials typically maintain a light speaking schedule in August before the event, and some investors are unsure of how Mr. Powell and other policy makers intend to address the recent escalation of trade tensions between the U.S. and China.
Bonds have rallied since the start of this month after President Trump said in a post on Twitter that he intended to raise additional tariffs on $300 billion of imports from China.
Since then, investor bets about how quickly the Fed will move to reduce rates have fluctuated. Federal-funds futures, which investors use to bet on the direction of central-bank policy, on Friday showed about a 20% probability that the Fed will cut rates by half a percentage point at its September meeting, with the remainder betting on a quarter-point reduction.
The odds of a larger cut are down from one-in-three Thursday, according to CME Group data.
“The market has been anchorless regarding the Fed since that tweet,” said Priya Misra, head of interest-rate strategy at TD Securities. “The market may be setting up for a dovish message from Powell and he may not be able to deliver.”
Mr. Powell disappointed some investors at his press conference last month when he referred to the Fed’s rate cut as a “mid-cycle adjustment,” a technical term that left many thinking he was discounting the need for further rate cuts.