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Bond Report: 10-year, 30-year Treasurys yield snap 4-session slide after jobless claims, 7-year auction

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Long-dated U.S. Treasurys on Thursday halted a four-session slide in yields as positive economic data and the final government debt auction of the week helped to fuel some selling, nudging yields slightly higher.

For the better part of the week, yields have been falling partly due to the concerns about Europe’s slow recovery from the COVID-19 pandemic.

How are Treasurys performing?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.628%

    yielded 1.614%, still hanging around its lowest level since March 15.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.352%

    yielded 2.334%, rising 2 basis points, compared with 2.314% on Wednesday.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.140%

    was at 0.135%, off 0.8 basis point versus 0.143% a day ago.

Both the 10-year and the 30-year, long bond, saw yields rise for the first time in five sessions.

What’s driving the fixed-income market?

An upbeat U.S. labor-market report, which showed that the number of new applications for unemployment benefits fell below 700,000 in late March for the first time since the onset of the pandemic, combined with a poor auction of 7-year debt to nudge up yields and halt a streak of gains for Treasurys.

The Treasury market absorbed $62 billion in 7-year notes
TMUBMUSD07Y,
1.281%

at an auction-high yield of 1.300%, 10.5 basis point north of a previous auction of similar maturities that was also deemed to be a bad outcome. Debt sales can influence the direction of trading in the secondary market.

Investors took the auction as implying that fixed-income investors are fretting about a proposal of $3 trillion in infrastructure spending by the Biden administration that could weigh on debt markets down the road. Investors also have been fretting about out-of-control inflation if the economy bounces back faster than the Federal Reserve is anticipating.

U.S. weekly jobless benefit claims fell by 97,000 to 684,000 in the week ended March 20, the government said Thursday. Economists surveyed by Dow Jones and The Wall Street Journal had forecast new claims would fall to a seasonally adjusted 735,000.

Investors also parsed a reading of fourth-quarter GDP, which was raised to 4.3%, beating economists’ consensus estimates for 4.1%.

Market participants kept one eye on a news conference held by President Joe Biden where he announced a new target for coronavirus vaccinations of 200 million doses during his first 100 days in office.

“I know it’s ambitious—twice our original goal—but no other country in the world has even come close, not even close, to what we are doing,” Biden said. “I believe we can do it.”

Separately, Federal Reserve Chairman Jerome Powell in a Thursday interview with NPR said that the economic rebound from the COVID pandemic has taken shape faster than policy makers had expected but emphasized that policy makers would reduce accommodative monetary policies only gradually.

“We will very gradually over time and with great transparency, when the economy has all but fully recovered, we will be pulling back the support that we provided during emergency times,” Powell told NPR, a day after his second day of congressional testimony to explain the health of the economy in the aftermath of the COVID pandemic.

Powell’s comments are an attempt to tamp down the market-driven perception that the Fed will be forced to ratchet up benchmark interest rates faster than they would prefer as the economy runs hotter than anticipated. Projections from Fed members indicate that the central bank won’t lift rates until around 2023.

What are fixed-income strategists saying?

“The auction tailed 2.5 basis points which in the scheme of month-end buying
highlights that bond investors are truly worried about additional stimulus measures and a $3 trillion infrastructure package that could be coming very soon,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, referring to “tailing,” a sign of a poor auction.

The tail is the gap between the highest yield the Treasury sold in the auction and the highest yield expected when the auction began – the “when issued” level.

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