U.S. Treasury yields edged higher on Thursday as fixed-income investors prepped for a report on second quarter economic growth and weekly jobless benefit claims that are expected to provide insight into the state of the recovery from COVID-19.
What yields are doing
- The 10-year Treasury note yield TMUBMUSD10Y, 1.260% was at 1.269%, versus 1.259% at 3 p.m. Wednesday. Yields for debt rise as prices fall.
- The 30-year Treasury bond rate TMUBMUSD30Y, 1.907% was at 1.920%, compared with 1.910% a day ago.
- The 2-year Treasury note yields TMUBMUSD02Y, 0.211% at 0.215%, versus 0.209% on Wednesday.
Moves for bonds on Thursday come after Federal Reserve Chairman Jerome Powell said Wednesday that the central bank was inching toward scaling back crisis-era monetary support, including monthly purchases of $120 billion worth of bonds, by signaling that tapering could begin soon, but emphasizing that changes would be telegraphed and gradually implemented.
“It’s not something that is on our radar screen right now,” Powell said during a Wednesday news conference with journalists to discuss the Fed’s updated policy.
Some analysts believe the Fed is setting the stage to start its rollback of accommodative policies by the end of 2021, with the Jackson Hole symposium of central bankers in late August and the Fed’s next policy meeting in late September as events when policy makers may more clearly signal their intentions.
On Thursday, investors will parse revision of second-quarter gross domestic product at 8:30 a.m. Eastern Time. Economists polled by The Wall Street Journal forecast an annualized 9.1% increase in gross domestic product in the second quarter—one of the largest growth spurts on record.
Weekly jobless benefit claims, a proxy for layoffs, are also scheduled to be published at the same time. Investors will watch for a report on pending home sales at 10 a.m.
U.S. stock indexes were mostly set to head higher Thursday, and Hong Kong’s embattled Hang Seng HSI, +3.30% index finished sharply higher, up 3.3%, after being pressured by a Chinese regulatory crackdown focused on technology companies domiciled in the People’s Republic.
Overseas, Germany’s 10-year yield TMBMKDE-10Y, -0.432%, known as the bund, was trading around -0.434%, marking its lowest level since February.
The decline in global yields, with U.S. Treasury yields also trading around four month lows, has been attributed to growing concerns about the strength of the economic recovery from COVID-19, amid a spike caused by the delta variant of the coronavirus.
Moreover, yields adjusted for inflation, or real yields, are trading at or near record lows. The yield on the 10-year Treasury inflation-protected security, or TIPS, touched -1.105% Wednesday, and the yield on Germany’s comparable TIPS hit a record low at -1.797%.
Investors may also be watching for the reception of a $62 billion auction of 7-year Treasury notes TMUBMUSD07Y, 1.020% at 1 p.m. ET.
Meanwhile, a bipartisan group of senators struck an agreement on a roughly $1 trillion infrastructure package, which will be watched closely by fixed-income investors for its potential impact on bond issuance to fund the initiative. The Wall Street Journal reports that completing the infrastructure package, which would provide for roughly $550 billion in spending above projected federal levels, is the first step Democrats hope to take toward approving much of President Biden’s agenda.
What strategists and traders are saying
“We continue to favor buying dips when 30yr yields rise to 1.98%/2% area and
when 10yr yields rise to 1.35%/1.38% area,” writes Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in a daily note.
“We read the July FOMC statement and Powell’s press conference as guiding against a September decision on tapering but indicating that the taper decision will likely come in November or December with tapering beginning around the end of the year,” wrote Krishna Guha, vice chairman of Evercore ISI and a former top Fed staffer, in a Thursday research note.
“Post-meeting the real ten-year yield reached a new low of minus 118bp. There may be something of a Rorschach test operating here, with some in the markets taking dovish reassurance from the guidance against a September taper alongside an upbeat take on growth, and others seeing additional cause to be concerned that the Fed is not as attentive to downside risks as it should be and might still end up pulling back too soon to secure strong nominal growth for the medium term,” Guha wrote.