Treasury yields fell Thursday as investors weighed weekly data on jobless claims alongside other economic indicators and awaited remarks from several Federal Reserve policy makers.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell by 9.3 basis points to 4.833%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 9.3 basis points to 4.451%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 6.1 basis points to 4.634%.
What’s driving markets
Benchmark Treasury yields traded near two-month lows as investors waited for fresh catalysts. The 10-year Treasury yield is down more than 50 basis points from its 16-year peak just above 5% that it touched last month.
Investors have piled into bonds in recent weeks amid hopes that easing inflation and a cooling economy will allow the Federal Reserve to start cutting interest rates by the middle of next year.
Markets are pricing in a 100% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on December 13th, and the subsequent meeting on Jan. 31, according to the CME FedWatch tool.
See: Stock and bond investors are convinced the Fed is finished with rate hikes. Why it isn’t a done deal.
The chances of a 25 basis point rate cut at the May meeting is priced at 48%, up from 30% a month ago.
The Labor Department said the number of Americans who applied for first-time unemployment benefits last week jumped to a three-month high of 231,000, suggesting some softening around the edges of a strong U.S. labor market
The Philadelphia Fed said Thursday its gauge of regional business activity improved slightly to negative 5.9 in November from negative 9 in the prior month. Any reading below zero indicates deteriorating conditions. Economists polled by The Wall Street Journal expected a negative 7.5 reading in November.
Industrial production and capacity utilization for October will be published at 9:15 a.m., followed at 10 a.m. by November home builder confidence.
There is a large number of Fed officials making comments on Thursday, including New York Fed President John Williams at 9:25 a.m. Eastern time; Fed Vice Chair for Supervision Michael Barr at 10:35 a.m.; and Fed Governor Lisa Cook at noon.
What are analysts saying
“[T]his is now the seventh time in the last two years we’ve had a very clear example of markets getting excited about a dovish pivot, and on the previous six those dovish expectations have entirely unwound again,” warned Jim Reid, macroeconomic strategist at Deutsche Bank.
“It all started with the Omicron variant being seen as the reason the Fed wouldn’t be able to raise at all in 2022…At some point there will be a dovish pivot, and this could be closer than the others to it, but be wary that we’ve now been to this well seven times in two years,” Reid added.
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