Long-dated Treasury yields on Thursday were set to fall for a fourth consecutive day, with the 10-year Treasury yield around its lowest level in over a week. Investors have attributed the price gains in yields partly to the concerns about Europe’s slow recovery from the COVID-19 pandemic which has fueled buying in U.S. government debt which offer higher yields than in the eurozone.
Market participants also parsed an updated estimate of fourth-quarter U.S. GDP and the closely followed reading of weekly jobless claims.
How are Treasurys performing?
- The 10-year Treasury note TMUBMUSD10Y,
1.595%yielded 1.593%, down 2 basis point, and hanging around its lowest level since March 15.
- The 30-year Treasury bond TMUBMUSD30Y,
2.292%yielded 2.289%, down 2.5 basis points, compared with 2.314% on Wednesday.
- The 2-year Treasury note TMUBMUSD02Y,
0.144%was at 0.141%, versus 0.143% a day ago.
Bond prices rise as yields fall.
What’s driving the fixed-income market?
Investors were digesting weekly U.S. labor-market data that showed that the number of new applications for unemployment benefits fell below 700,000 in late March for the first time since the onset of the pandemic as the U.S. economy shifted into a higher gear.
Initial jobless claims filed traditionally through the states declined by 97,000 to 684,000 in the week ended March 20, the government said Thursday. Economists surveyed by Dow Jones and The Wall Street Journal had forecast new claims would fall to a seasonally adjusted 735,000.
Meanwhile, a reading of fourth-quarter GDP was raised to 4.3%, beating economists’ consensus estimates for 4.1%.
Separately, Federal Reserve Chairman Jerome Powell in a Thursday interview with NPR said that the rebound from COVID has taken shape faster than policy makers had expected but emphasized that policy makers would reduce accommodative policies only gradually.
“We will very gradually over time and with great transparency, when the economy has all but fully recovered, we will be pulling back the support that we provided during emergency times,” Powell told NPR, a day after his second day of congressional testimony to explain the health of the economy in the aftermath of the COVID pandemic.
Powell’s comments are an attempt to tamp down the market-driven perception that the Fed will be forced to ratchet up benchmark interest rates faster than they would prefer as the economy runs hotter than anticipated. Projections from Fed members indicate that the central bank won’t lift rates until around 2023.
Looking ahead, investors will be focused on an auction of $62 million in 7-year Treasury notes at 1 p.m. Eastern, which is the final leg of $183 billion in issuance that the bond market has absorbed this week.
What are fixed-income strategists saying?
“After a successful 7 year US Treasury auction, the curve has started to settle. It still expects hikes in 2023 when the Federal Reserve expects none as there is a fundamental disagreement on the Fed’s reaction function under Average Inflation Targeting (AIT),” wrote Sebastien Galy, senior macro strategist at Nordea.
“The market believes that inflation above target for a while and not excessively so will force the Fed to tighten early, the Fed disagrees,” he wrote.