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Bond Report: Longest-dated Treasury yield slips, but remains near two-week highs, following mediocre 7-year auction

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The 30-year Treasury yield slipped, while the 10-year rate was unchanged, on Thursday after an auction of $62 billion in 7-year Treasury notes produced mediocre results.

Yields on both maturities remained near their highest levels of the past two weeks, while data showed the U.S. economy grew slightly faster than previously estimated in the second quarter. Meanwhile, three non-voting Federal Reserve officials backed a tapering of bond buying sooner rather than later, leading into Fed Chairman Jerome Powell’s Jackson Hole speech on Friday.

What yields are doing
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.354%

    was yielding 1.342%, unchanged versus Wednesday at 3 p.m. Eastern Time. Yields for debt move opposite to price.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.238%

    was yielding 0.237%, versus 0.243% a day ago.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.949%

    yields 1.940%, compared with 1.958% on Wednesday. It was the largest one-day decline for the rate in a week.
  • The 10- and 30-year rates hit their highest since Aug. 12 on Wednesday, based on 3 p.m. levels, according to Dow Jones Market Data.
What’s driving the market?

The move in yields came after an auction of $62 billion in 7-year Treasury notes BX: TMUBMUSD07Y produced what Jefferies LLC economists Thomas Simons and Aneta Markowska describe as “very average stats.”

Ahead of Powell’s Jackson Hole speech tomorrow, three non-voting members of the Federal Open Market Committee indicated that they back the tapering of bond buys sooner rather than later.

Kansas City Fed President Esther George, in an interview with CNBC on Thursday, said “we have made substantial further progress and we can begin to talk about backing off some of that accommodation.” Meanwhile, in a separate interview with the network, St. Louis Fed President James Bullard joined George’s call for starting the taper process soon. He said the economy was “booming.” And Dallas Fed President Rob Kaplan, seeing “resiliency” in the face of the delta variant, stuck with his prior call for a September taper announcement.

Data released Thursday shows the U.S. economy grew a bit faster in the spring than previously estimated, but not enough to change the underlying growth trend as the recovery from the pandemic continues. Gross domestic product, the official scorecard for the U.S. economy, rose at a revised 6.6% annual pace in the second quarter, the government said.

Weekly U.S. jobless benefit claims rose for first time in five weeks, but remained near a pandemic low and suggest the economy is still doing pretty well despite a surge in coronavirus cases. Initial jobless claims in the states increased by 4,000 to 353,000 in the week ended Aug. 21, the government said Thursday. Economists polled by The Wall Street Journal had estimated new claims would total 350,000.

Until Thursday, yields for long-dated debt had been gradually drifting higher ahead of the Jackson Hole event, where Powell is expected to delivery a key speech on Friday, which could provide some guidance on monetary policy plans.

A specific focus will be on any mention of an unwind of the central bank’s monthly purchases of $120 billion in Treasurys and mortage-backed securities that have been in force since the height of the pandemic-induced disruptions to financial markets back in the spring of 2020.

What analysts are saying
  • “A fair dose of concern ahead of the Jackson Hole symposium is weighing on bond markets. The 10Y UST yield rose for a second day in a row without any data impulses of top-tier relevance,” wrote analysts at UniCredit in a research note dated Thursday.
  • “We’re seeing a little more risk aversion in the markets on Thursday, with Jerome Powell’s Jackson Hole appearance tomorrow continuing to be the main thing on investors minds,” said Craig Erlam, senior market analyst for Europe at OANDA Corp. “The reality is that Powell will say as little as possible, buy the committee a few more weeks and then say more at the September meeting.”

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