April 18, 2017 / 7:09 PM / 3 months ago

TREASURIES-U.S. bond prices rally on French election, geopolitical concerns

3 Min Read

 (Adds quote, data, updates prices)
    * French election uncertainty boosts bond demand
    * Tensions with North Korea rising
    * U.S. Federal Reserve rate hike expectations falling

    By Karen Brettell
    NEW YORK, April 18 (Reuters) - U.S. Treasury yields fell to
five-month lows on Tuesday as nervousness ahead of France’s
first round of presidential elections this weekend and ongoing
geopolitical tensions increased demand for safe-haven U.S. debt.
    French opinion polls show that far-right leader Marine Le
Pen and centrist Emmanuel Macron qualifying next Sunday for the
May 7 run-off, but the gap with conservative Francois Fillon and
far-leftist Jean-Luc Melenchon has been tightening.             
    Rising tensions between U.S. and North Korea have also put
investors on edge in recent weeks.
    "There are election fears in France and geopolitical fears
in Asia," said Gennadiy Goldberg, an interest rate strategist at
TD Securities in New York.
    The Guardian reported on Tuesday that the U.S. military is
considering shooting down North Korean missile tests as a show
of U.S. strength.
    U.S. Vice President Mike Pence reassured Japan of American
commitment to reining in North Korea's nuclear and missile
ambitions on Tuesday, after warning that U.S. strikes in Syria
and Afghanistan showed the strength of its resolve.             
    U.S. benchmark 10-year Treasury note yields fell as low as
2.177 percent            , the lowest since Nov. 14, and down
from 2.252 percent on Monday. The yields have tumbled from 2.629
percent on March 14.
    British Prime Minister Theresa May on Tuesday called for an
early election on June 8, saying she needed to strengthen her
hand in divorce talks with the European Union by shoring up
support for her Brexit plan.             
    Bonds have also been boosted by falling expectations that
the Federal Reserve will raise interest rates an additional two
times this year, as economic data disappoints and the Trump
administration is seen as less likely to pass fiscal or tax
reforms in the near-term, which was expected to boost growth.
    “The market continues to get less and less information out
of the administration as far as fiscal stimulus and tax reform
go as time goes on. At the same time there are risk events
creeping into the market,” said Tom Tucci, head of Treasuries
trading at CIBC in New York.
    Data on Tuesday showed that U.S. homebuilding fell in March
and manufacturing output dropped for the first time in seven
months.             
    Futures trading is pricing in a 43 percent chance the U.S.
central bank will raise rates at its June meeting, down from 71
percent on April 6, according to the CME Group’s FedWatch Tool.

 (Editing by Nick Zieminski and Chizu Nomiyama)
  
 
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