U.S. Treasurys rallied on Thursday, sending the yield on the 10-year note back down to around 1.26% following an unexpected rise in weekly jobless benefit claims.

Meanwhile, European yields declined as the European Central Bank adjusted its forward guidance in keeping with its newly adopted inflation target.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.264%

slipped 1.5 basis points to 1.264% after trading above 1.30%.

The 2-year Treasury note yield
TMUBMUSD02Y,
0.211%

was little changed at 0.200%.

The 30-year Treasury bond yield
TMUBMUSD30Y,
1.904%

fell 2.9 basis points to 1.900%.

What’s driving the market?

U.S. initial jobless benefit claims surged by 51,000 to 419,000 in the seven days ended July 17, the government said Thursday. The surge in new claims was well above Wall Street expectations, and unsettled gave some investors concern about the strength of the economy. Economists had expected first-time claims to fall to 348,000 from 360,000 the previous week.

In other U.S. data, the median sales price of existing homes rose to a record $363,300 in June, up 23.4% year-on-year. And the Conference Board’s leading economic index increased by 0.7 percent in June to 115.1, suggesting that strong economic growth will continue in the near term.

U.S. stocks rebounded after struggling for direction earlier on Thursday amid the mixed data. The Dow Jones Industrial Average DJIA rose by 54 points, or 0.2%, to 34,852.69. The S&P 500 SPX also advanced by 0.2% — to 4,368.59.

The U.S. Treasury’s $16 billion 10-year auction of TIPS produced a “solid result at record low yield,” according to BMO Capital Markets.

Meanwhile, the ECB left interest rates and asset purchases unchanged, while altering its forward guidance on rates to align with the asymmetric inflation target of 2% adopted after its recent strategy review. The ECB previously aimed to keep inflation near but just below 2%.

In a statement following its policy meeting, the Governing Council said it expects “key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term.” The ECB said this “may also imply a transitory period in which inflation is moderately above target.”

The statement was largely in line with expectations for the ECB to maintain a dovish stance, analysts said. The yield on the benchmark 10-year German government bond
TMBMKDE-10Y,
-0.423%

fell to -0.424%.

What are analysts saying?

“This was a bit like old wine in a new bottle; the communication has changed somewhat but in terms of substance the ECB remains very dovish, putting a cap on any tapering speculations,” said Carsten Brzeski, global head of macro at ING, in a note.

As for Treasurys, “the unexpected rise in claims has pushed Treasury yields lower as the pace of job creation remains uncertain at this stage in the recovery,” wrote BMO strategist Ian Lyngen.

JPMorgan Chase & Co.’s Peter B. McCrory says in a note that “we continue to evaluate the claims data (and other economic indicators) to determine if and to what extent the end of pandemic-related unemployment insurance programs in nearly half the country has influenced the labor market and the overall economy.”

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