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Mar 12, 2018

The Wall Street Journal - Money Beat on March 12, 2018.

  The Wall Street JournalMoneyBeat

Treasury Market Faces a Test at 3%

By Ben Eisen

Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 03/12/2018 08:48:54 AM ET
S&P 500 Futures 0.22%
2795
DJIA Futures 0.22%
25416
U.S. 10 Year 0/32
2.894%
WSJ Dollar Index -0.03%
83.79
Crude Oil -0.82%
$61.53
Gold -0.49%
$1317.50
Europe
Asia
FTSE 100 -0.04%
Nikkei 225 1.65%
DAX 0.4%
Hang Seng 1.93%
CAC 40 0.02%
Shanghai 0.59%

Overnight Developments

  • Global stocks started the week higher, extending an upbeat lead from Wall Street on Friday after the jobs report eased inflation worries. Futures pointed to a 0.3% rise for the S&P 500.
  • The Stoxx Europe 600 gained 0.3%, building on five straight sessions of gains.
  • Earlier, stocks gained in Japan, Hong Kong and South Korea.
  • The Breakfast Briefing

    The benchmark Treasury note is having trouble hitting 3%.
    The 10-year U.S. government bond, a gauge of borrowing costs linked to everything from home loans to corporate debt, came within 0.06 percentage point of notching a 3% yield in February after a rapid climb in the last few months. But it backed off recently, suggesting the market may struggle to get above that psychological threshold in the immediate future unless there’s more evidence of economic acceleration.
    On Friday, a blowout jobs report showed the U.S. added 313,000 new jobs, and worker wages continued to climb. The yield on the 10-year Treasury note pushed 0.04 percentage point higher but closed the day more than 0.1 percentage point short of 3%. Yields have also been range-bound in recent weeks despite concerns that metals tariffs signed by President Donald Trump last week will spark a trade war.
    A 3% yield on the 10-year wouldn't, on its own, drastically alter the trajectory of borrowing costs or the economy. But it suggests to investors that a strengthening growth outlook and creeping inflation support higher yields, moving further away from the historic low rates of the post-crisis period. By contrast, a fall-off in yields would temper expectations that the U.S. economy has finally shifted into a higher gear.
    The 3% level is also notable because yields peaked right around that milestone the last time they jumped sharply, in 2013. And they didn’t stay there for long before diving back to record lows a few years later.
    Part of the 3% obstacle reflects lingering doubts that inflation and economic growth are taking off as quickly as some would like to believe. Consumer prices are edging higher, removing the fear of disinflation from the marketplace, but key inflation gauges are still below the Fed's 2% annual target. Gross domestic product has had a healthy increase in the past year, but growth has slowed slightly in the last few quarterly readings.
    That's not to say the yield couldn’t top 3% in the near future. Strong economic data, such as fresh inflation data for February that's due out Tuesday, could be the catalyst to elevate yields above that level. But, for the moment, the bond market is sending a message that it wants to see more signs of an accelerating economy first.