U.S. Government Bond Prices Extend Declines

Investors sold government bonds again Tuesday, sending the yield on the benchmark 10-year U.S. Treasury note to a fresh 52-week high.

The yield on the 10-year U.S. Treasury note settled at 2.725%, compared with 2.695% Monday, remaining at its highest level since April 22, 2014.

Yields, which rise as bond prices fall, have climbed for eight of the past 10 trading days as investors have bet on a pickup in growth and inflation following the passage of the U.S. corporate tax cuts.

The combination of factors has pressured government bonds, whose fixed payments are worth less when inflation rises. A more upbeat economic environment can also weigh on bond prices by pushing investors into riskier assets like stocks.

Some investors and analysts have also worried that the recently passed U.S. tax overhaul package will lead to a jump in the budget deficit, pushing the government to potentially issue more debt than investors demand.

Still, others say they are skeptical the bond selloff will continue unabated. Treasury yields remain high relative to yields on bonds issued by other governments, making them attractive to foreign investors.

"There's likely to be continued strong global demand for the deepest, most liquid fixed-income market in the world," said Bill Northey, chief investment officer at the private client group of U.S. Bank, who added that government bonds issued elsewhere, like in Germany, still carry comparatively low yields.

Another factor that should help support Treasury prices: inflation, considered a key threat to the 10-year note, hasn't consistently broken the Federal Reserve's 2% target.

"We just don't think a sharp rise in rates is a likely move," said Paul Christopher, head of global market strategy for Wells Fargo Investment Institute. "Foreign demand, low inflation, aging investors -- all of these things are limiting the rise in yields."

Later this week, investors will get a fresh look at one sign of inflation, wage growth, with the Labor Department's monthly employment report.

Economists surveyed by The Wall Street Journal expect average hourly wages to rise by 0.2% in January, compared with 0.3% the prior month.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

January 30, 2018 16:12 ET (21:12 GMT)