The 10-year Treasury yield fell to 3.328%, while the 30-year yield declined 5.7 bps to 3.743%. Yields initially spiked following new labor data. Worker productivity declined 2.7% in the first quarter at the same time as unit labor costs surged 6.3%, a sign of rising consumer prices. But long-term yields reverted back to their downward course this week, as investors bet that the Fed will cut interest rates this year after raising them by 25 bps on Wednesday. A sharp drop in the shares of PacWest and other regional banks this week has added to unease about the economy's direction. "That's what is driving the market at the moment, which is more concerned about financial stability than what's going on with the data," said John Madziyire, head of Treasuries and inflation in the Vanguard Fixed Income Group. Other Thursday data showed initial jobless claims rose 13,000 to a seasonally adjusted 242,000 for the week ending April 29, consistent with Tuesday data showing a decline in job openings. "Monetary policy is starting to slow the demand for labor, which is what it's supposed to do, and that should give the Fed some confidence," said Eric Winograd, senior U.S. economist at asset manager AllianceBernstein. "That evidence is a big part of the reason I think they are done raising rates and they're likely to stay on hold." Meanwhile, investors continue to dump bonds with shorter-term maturities, in the latest sign of nerves about the U.S. debt ceiling standoff. Treasury Secretary Janet Yellen said earlier this week that the government could run out of cash as soon as June 1, as Democrats and Republicans are still at an impasse. The yield on three-month Treasury bills rose overnight to 5.55%, its highest level since January 2001. It last stood at 5.322%. The yields on one-month and two-month T-bills also remained elevated from Wednesday's session. The Treasury Department on Thursday will hold auctions for $50 billion in four-week bills and $45 billion in eight-week bills. Yields on existing four-week bills rose 12.7 bps to 5.647% while yields on existing eight-week bills jumped 30.9 bps to 5.432%. The European Central Bank on Thursday slowed the pace of its own rate hiking to 25 bps, as expected.
The market on Friday will watch for further economic data, including the Labor Department's latest employment figures.
May 4 Thursday 10:11AM New York / 1411 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.165 5.3052 0.047
Six-month bills 4.8575 5.0483 -0.004
Two-year note 100-5/256 3.8644 -0.075
Three-year note 100-136/256 3.5578 -0.079
Five-year note 100-188/256 3.3388 -0.072
Seven-year note 100-238/256 3.3496 -0.049
10-year note 101-8/256 3.3749 -0.028
30-year bond 98-56/256 3.7243 0.009
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 25.50 -2.00
spread
U.S. 3-year dollar swap 16.00 -1.50
spread
U.S. 5-year dollar swap 10.00 -0.75
spread
U.S. 10-year dollar swap 2.75 -0.75
spread
U.S. 30-year dollar swap -40.50 -1.00
spread
(Reporting by Matt Tracy; Editing by Jonathan Oatis, Kirsten Donovan)
