Treasury yields edged up on Thursday following recent
declines after revised data for Americans seeking unemployment
benefits indicated a weaker but still fairly strong labor
market, giving investors pause before a key unemployment report.
Annual revisions to the Labor Department's data showed
unemployment applications were higher this year than initially
thought, further evidence that the jobs market was slowing.
Initial claims for state unemployment benefits dropped
18,000 to a seasonally adjusted 228,000 for the week ended April
1. Data for the prior week was revised to show 48,000 more
applications received than previously reported.
The tightening of credit available to small businesses will take some time to show labor demand is weakening, but this outcome is inevitable in the long-run, said Tom Simmons, money market economist at Jefferies & Co in New York.
In the interim, "we're going to continue to see volatility be really significant," he said. "It's a constant push-pull between people who think that the economy is going to be OK," he said, and "a group that thinks that the Fed has to stop raising rates and needs to cut multiple times this year and get down to significantly lower rates." Yields drifted higher during the session but have fallen sharply since early March on banking concerns following the collapse of Silicon Valley Bank and later fears that the Federal Reserve's tightening of credit would spark a recession. The two-year Treasury yield, which typically moves in step with interest rate expectations, rose 6 basis points to 3.823%. The yield has dropped from its open of 4.104% on Monday and higher than 5.0% in early March. The yield on benchmark 10-year notes rose 0.7 basis points to 3.294%, after earlier setting a fresh almost seven-month low. While claims indicated a weakening economy they are still on the low side compared to a 10-year monthly average of about 305,000 prior to COVID, said Kevin Flanagan, head of fixed Income Strategy at WisdomTree. "Perhaps the employment setting based on claims was not as strong as initially thought, but it's certainly not weak," Flanagan said, adding that this week's weak data could quickly be forgotten after Friday's non-farm payrolls report. The bond rally has pushed yields lower, doing a good part of the market's desire to see the Fed cut interest rates, a drop that has shown up in conventional 30-year mortgage rates, Flanagan said. "Open market rates play a big role in other borrowing arrangements throughout the economy. So not everything is going to be based upon the exact fed funds target," he said, referring to the Fed's current lending rate of 4.75%-5.05%.
The yield on the 30-year Treasury bond was down 1.6 basis points to 3.541%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at -53.1 basis points.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.389%.
The 10-year TIPS breakeven rate was last at
2.245%, indicating the market sees inflation averaging just
above the Fed's 2.2% target over the next decade.
The U.S. dollar 5-years forward inflation-linked swap , seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.428%.
April 6 Thursday 3:08PM New York / 1908 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.7525 4.8745 0.023
Six-month bills 4.675 4.8521 0.048
Two-year note 100-25/256 3.8226 0.060
Three-year note 102-216/256 3.5926 0.047
Five-year note 101-48/256 3.3635 0.020
Seven-year note 101-212/256 3.3289 0.005
10-year note 101-188/256 3.2921 0.005
20-year bond 103-16/256 3.6564 -0.006
30-year bond 101-140/256 3.5405 -0.016
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 32.25 1.50
U.S. 3-year dollar swap spread 16.25 0.75
U.S. 5-year dollar swap spread 6.75 0.75
U.S. 10-year dollar swap spread 0.00 0.25
U.S. 30-year dollar swap spread -40.75 0.75
(Reporting by Herbert Lash; Editing by Richard Chang and Chizu Nomiyama)
Messaging: herb.lash.reuters.com@reuters.net))