The 10- and 30-year U.S. Treasury yields posted their biggest two-day drops in over a week amid a continued rally in government bonds, as traders continued to focus on the impact that persistent inflation may take on the U.S. economy.
What are yields doing?
The yield on the 10-year Treasury note
dropped 1.8 basis points to 1.586%, down from 1.604% at 3 p.m. Eastern on Wednesday.
The 2-year Treasury note yield
declined less than 1 basis point to 0.5% versus 0.502% Wednesday afternoon. It’s the lowest level for the yield since Nov. 9, based on 3 p.m. levels, according to Dow Jones Market Data.
The 30-year Treasury bond yield
fell 2.6 basis points to 1.971%, down from 1.997% late Wednesday.
The 10- and 30-year rates extended their declines from Wednesday, posting the biggest two-day drops since Nov. 5 and Nov. 9, respectively.
What’s driving the market?
Yields remained lower as investors continued to weigh the impact of persistent inflation on economic growth against incoming data releases.
On Thursday, weekly data showed U.S. jobless claims dipping 1,000 to a pandemic low of 268,000 in the seven days ended Nov. 13, as labor shortages forced businesses to avert layoffs. Economists had expected first-time claims for unemployment benefits to fall to 260,000.
Meanwhile, the Philadelphia Federal Reserve Bank’s manufacturing index surged to a seven-month high in November despite rising inflation. The report, along with a strong reading of the New York Fed’s manufacturing index, point to a healthy manufacturing sector, though one that’s paying more for inputs and passing along those price increases to customers.
The Conference Board’s leading economic index jumped 0.9% in October and pointed toward a pickup in growth toward the end of 2021.
A sharp drop in oil prices may have put pressure on yields. Oil finished higher on Thursday, with prices rebounding after dropping to their lowest levels in about six weeks.
Analysts say this week’s drop in yields appeared to be driven largely by technical factors, with Treasury prices due for a bounce after becoming significantly oversold in the wake of last week’s hotter-than-expected U.S. October Consumer Price Index reading.
Fed officials remained in the spotlight on Thursday. Federal Reserve Bank of New York President John Williams defended the central bank’s new flexible approach on inflation from critics, who say it is holding the central bank from taking obvious moves to cool prices.
Meanwhile, Chicago Fed President Charles Evans, appearing in a moderated discussion, said that although there’s more uncertainty around inflation now than a few months ago, supply-chain woes will be resolved in time to enable the expansion to continue in 2022. San Francisco President Mary Daly is also set to speak on Thursday.
A decision looms by President Joe Biden on whether to nominate Federal Reserve Chairman Jerome Powell for a second term, which is expected any day. The decision is widely seen as coming down to a choice between Powell or Fed Gov. Lael Brainard.
What are analysts saying?
“With another upside inflation surprise in the US last week, as well as this week’s upside surprise in the UK and confirmation of the higher than expected preliminary reading for the Euro area, the question of the persistence of inflation has again featured heavily in our discussions with clients,” said JPMorgan Chase & Co. strategists such as Nikolaos Panigirtzoglou and Mika Inkinen.