U.S. Government Bonds Decline As Sentiment Shifts

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05/17/2018 | 06:50 pm

By Daniel Kruger

U.S. government bonds weakened Thursday, sending yields to fresh multiyear highs.

The yield on the benchmark Treasury 10-year note recently traded at 3.111%, according to Tradeweb, from 3.093% Wednesday. Yields rise as bond prices fall.

Some investors and analysts said the continued selling was surprising, given a host of geopolitical concerns lingering world-wide, including upcoming nuclear talks between the U.S. and North Korea, the pending deadline for revising the North American Free Trade Agreement and the efforts by antiestablishment political parties in Italy to form a coalition government.

Investors typically respond to geopolitical turmoil by increasing their purchases of Treasurys, which are seen as a safe asset.

Several analysts said demand for Treasurys remained weak even though U.S. yields are higher than those for any other developed market economy. The gap between U.S. and German government bond yields recently hit its widest since 1989.

The array of concerns should be "positive for bonds, and that's not happening," said Andrew Brenner, head of global fixed-income at NatAlliance Securities. The absence of demand for Treasurys with their relatively high yields could suggest rising concerns that the U.S. is entering a bear market for bonds, he said. "Given that, I just think we're in for more pain."

The yield gains came ahead of a scheduled auction for $11 billion of 10-year Treasury inflation-protected notes Thursday afternoon.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

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