By Sunny Oh

The Italian election will be held on March. 4

Treasury prices rose, pulling yields lower, on Friday to follow the rally in European government paper after unease over the coming Italian election set for early March has stoked demand for safe-haven bonds.

What are bonds doing?

The 10-year Treasury note yield slipped 3.1 basis points to 2.886%, according to Tradeweb data. The 2-year note yield was down 1.6 basis point to 2.238%. The 30-year bond rate fell 3.2 basis points to 3.174%.

The yield for the 10-year German government bond, or bunds, fell 4.5 basis points to 0.660%. But the 10-year Italian government bond yield was up 0.9 basis point to 2.083%, extending a weeklong climb from 1.998%.

Bond prices move in the opposite direction of yields.

What's driving markets?

Traders looked ahead to the Italian election on March. 4 where the chance of a populist euroskeptic party being elected to government caused Italian bonds to come under pressure and bonds of other eurozone economies to rally. In particular, German bonds, or bunds, received a lift as the traditional haven asset in European markets.

Treasurys tend to follow bunds as they share similar characteristics and are both seen as high-quality and liquid assets.

Analysts and the latest polls say the most likely result from the election is a hung parliament. The potential for political deadlock threatens the prospect of economic reforms needed to resuscitate Italian growth and a banking system weighed down by bad debts. Italy's government debt as a percentage of GDP stands above 130%, the second highest levels in the eurozone.

See: Why investors are counting down to the most important date on Europe's political calendar (http://www.marketwatch.com/story/investors-are-counting-down-to-the-most-important-date-on-europes-political-calendar-2018-02-20)

What did analysts say?

"In the run up to Italian elections next Sunday, Italian debt has led all credit spreads in Europe wider this week. That includes a serious reversal of profits in senior bank obligation credit, a weakness that appeared to have worked itself out in 2017. The result this morning is a 4 - 5 basis point decline in higher grade [European] sovereign yields to levels not seen in four weeks," said Jim Vogel, interest-rate strategist for FTN Financial.

What else is on investors' radar?

New York Fed President William Dudley, Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren will speak during Chicago Booth School of Business' Fed policy forum which begins from 10 a.m. to 4 p.m. Eastern. San Francisco Fed President John Williams will give a talk on the "Outlook on the Economy and the Implications for Monetary Policy" at 3:40 p.m.

Fed Chairman Jerome Powell is set to testify next week to the House's Committee on Financial Services as part of its semiannual report on monetary policy to Congress. This will be the first time Powell will preside over the affair, after taking up the reins from Janet Yellen in February.

 

(END) Dow Jones Newswires

February 23, 2018 08:54 ET (13:54 GMT)

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