U.S. Government Bonds Fall Ahead of Fed Meeting

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U.S. Government Bonds Fall Ahead of Fed Meeting

The U.S. Treasury Department building in Washington. Photo: paul j. richards/Agence France-Presse/Getty Images

U.S. government bond prices swung between gains and losses before falling Monday on signs that conditions are improving for the global economy, curbing demand for safe assets.

The yield on the benchmark 10-year Treasury note snapped a two-session streak of declines, settling at 3.078% from 3.068% Friday. Yields rise as bond prices fall.

Yields rose in early trading after comments from European Central Bank President Mario Draghi suggested that the European economy may be poised to accelerate, adding to optimism about the global economy.

Demand for the safety of government bonds has waned after central bankers in Argentina and Turkey began raising interest rates to reign in rapid inflation. Some analysts said previously weak responses by policy makers in those countries were leading to sharp declines in their currencies, while also raising concerns their troubles could spill over to other emerging-market economies.

Rate increases in those economies have encouraged investors to view events in the context of an expanding global economy, and they have recently been willing to overlook some softness in U.S. data relating to consumer prices and retail sales, analysts said. Weak inflation helps support the value of government bonds by preserving the purchasing power of their fixed payments.

“There’s been a change in sentiment,” said Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union.

Investors are also looking ahead to the Federal Reserve’s meeting Tuesday and Wednesday, where policy makers are widely expected to raise interest rates for a third time this year, analysts said. Investors will be looking at the projections of policy makers on the economy and the path of interest-rate policy for 2021, which officials will be offering for the first time.

Fed officials have penciled in three rate increases for 2019, though many investors have said they are uncertain whether policy makers will interrupt the trend of quarterly rate raises at some point next year to reconsider their options.

Yields retraced an early advance Monday after news reports said that Deputy Attorney General Rod Rosenstein was likely to leave the Trump administration. Yields rose again after the White House said President Trump and Mr. Rosenstein would meet Thursday to discuss Mr. Rosenstein’s status.

Investors could see Mr. Rosenstein’s departure as a sign that Mr. Trump could end the investigation into Russian election interference, which could add “a pretty big source of uncertainty” to financial markets, said Priya Misra, head of global rates strategy at TD Securities.

Write to Daniel Kruger at [email protected]