The Federal Reserve may now have the cushion to hold off on speeding up the pace of interest rate hikes, according to labor market data that showed weekly initial jobless claims increased more than anticipated last week. This news caused shorter-dated U.S. Treasury yields to decline on Thursday.
The number of new applications for unemployment insurance rose by 21,000 to 211,000 seasonally adjusted claims for the week ending March 4, the highest number in five months, although the trend still indicates a strong job market.
According to Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, “investors have been looking for a spot for yields to crest, given how high they have moved and the fact that the Fed seems committed to bringing down the inflation rate,” any weak economic news encourages them to enter the market at those points.
Investors want to be present for the turn, thus they are placing a probability bet on it.
The 10-year Treasury note rate increased 0.4 basis points to 3.980%.
The jobless claims data comes ahead of Friday’s payrolls report, which, according to a Reuters survey of experts, is forecast to show that nonfarm payrolls climbed by 205,000 jobs in February after surging 517,000 in January. At 3.4%, the unemployment rate is expected to remain unchanged from its more than 53-1/2-year low.
The 30-year Treasury bond’s yield was
3.1 basis points higher
at
3.908
%.
Later on Thursday, when the Treasury Department holds an auction for $18 billion in 30-year bonds, more supply will enter the market.
The difference between the yields on two- and 10-year Treasury notes, a key component of the U.S. Treasury yield curve used to gauge economic expectations, was at a negative 102.1 basis points, the deepest inversion since 1981. A reliable recession signal is considered to be an inversion.
It decreased 6.9 basis points to 4.997% for the two-year U.S. Treasury yield, which typically moves in lockstep with expectations for interest rates.
This week, shorter-term yields increased, starting on Tuesday after U.S. Federal Reserve Chair Jerome Powell hinted at faster and higher rate increases. They continued to rise throughout the rest of the week, peaking on Wednesday at 5.084%, the highest level since June 15, 2007.
After closing at 2.547% on Wednesday, the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.569%.
The market currently expects inflation to average 2.3% per year over the next ten years, according to the 10-year TIPS breakeven rate, which was last at 2.348%.
