U.S. Treasury yields fell on Thursday, as investors picked up bonds, even as a key Fed voter said that the central bank was “very close” to the hurdle needed to start curtailing bond purchases, a process that should be able to start this year.

Meanwhile, investors digested weekly data on U.S. employment and the latest policy statement from the European Central Bank.

What yields are doing

The 10-year Treasury note
TMUBMUSD10Y,
1.298%

yields 1.300%, versus 1.333% on Wednesday as of 3 p.m. Eastern Time.

The 30-year Treasury bond
TMUBMUSD30Y,
1.891%

rate was at 1.898%, after trading at 1.952% a day ago.

The 2-year Treasury note
TMUBMUSD02Y,
0.212%

yields 0.214%, compared with 0.218% on Wednesday.

The 10-year German bund rate
TMBMKDE-10Y,
-0.359%

was at negative 0.363%, compared with negative 0.328% on Wednesday.

What’s driving the market

Long-dated Treasury yields managed to mount a two-session decline, its steepest two-day fall since Aug. 16, as investors weighed a trove of economic reports and comments from European and domestic central bankers that could serve as a prelude to the beginning of the end of easy-money policies in the U.S.

Federal Reserve Gov. Michelle Bowman on Thursday said that the Fed was close to announcing the start of tapering of monthly purchases of $120 billion in Treasurys and mortgage-backed securities.

“If the data comes in as I expect that it will, that it will likely be appropriate for us to begin the process of scaling back our asset purchases this year,” Bowman said, during a virtual discussion with the American Bankers Association.

Bowman’s comments fall in line with other U.S. central bankers this week, including New York Fed President John Williams, who said that “assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year,” in a speech Wednesday hosted by St. Lawrence University.

Dallas Fed President Robert Kaplan also said on Wednesday that “he’d be advocating that we should announce a plan for adjusting these purchases in the September meeting, and begin shortly thereafter, maybe in October.” Kaplan isn’t a voting FOMC member this year.

Comments from Fed members come as Europe’s central bank said that it would conduct asset purchases under its pandemic emergency purchase program, or PEPP, at a “moderately lower pace” after accelerating purchases in recent quarters.

ECB President Christine Lagarde, however, played down the notion that the central bank’s decision was tantamount to a taper, and instead described a slowdown of the pace of asset buying under the institution’s pandemic emergency program as recalibration of stimulus efforts.

The ECB said PEPP purchases would continue with an envelope of €1.85 trillion through at least the end of March 2022. The ECB left key interest rates unchanged, as expected.

Still, rates for the 10 and 30-year debt caught a bid, pushing yields lower. A strong $24 billion auction of 30-year bonds also helped to drive yields lower, analysts said, underscoring appetite for safe-haven assets.

Some strategists have said that fears of volatility rearing up in equities that are perceived as richly valued have contributed to buying in government debt.

Meanwhile, initial jobless claims fell by 35,000 to 310,000 in the week ended Sept. 4, the Labor Department said Thursday, marking the lowest level of claims since the pandemic struck in March 2020 and the biggest decline in claims since late June.

Economists polled by The Wall Street Journal had estimated new claims would total 335,000.

What analysts are saying

Lagarde could hardly have been more emphatic in insisting that this is not tapering—channeling Margaret Thatcher with her phrase ‘the Lady is not tapering,” wrote Evercore ISI’s Krishna Guha. “The ‘moderately lower’ formula is imprecise by design to give the Council flexibility in determining the exact monthly pace and Lagarde made no effort to clarify what it means,” he said.

“We expect major central banks to remain supportive of growth, keeping rates lower for longer. This is positive for equity markets, particularly cyclical and value areas of the market,” wrote UBS Global Wealth Management’s chief investment officer, Mark Haefele, in a note. “And while this complicates the search for yield, we continue to see opportunities. In currencies, we think going long GBP and NOK and short EUR and CHF should provide a mid- to high-single-digit percentage upside on a total return basis over the next six to 12 months,” the CIO wrote.

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