Treasury yields stabilize ahead of $25 billion 30-year auction

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Treasury yields were mixed early Thursday ahead of weekly jobless benefit claims data and a $25 billion auction of 30-year paper.

What’s happening

  • The yield on the 2-year Treasury
    fell by 1.7 basis points to 4.429%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    rose 2 basis points to 4.116%.

  • The yield on the 30-year Treasury
    climbed less than 1 basis points to 4.337%.

What’s driving markets

Ten-year Treasury yields have stabilized around the 4.1% level as the market appears more comfortable with likely Federal Reserve interest rate trajectory.

After Fed Chair Jay Powell said last week that a March rate cut was unlikely — a view echoed by a number of his colleagues in recent days — the market has now shifted its attention to the subsequent Fed meeting in May for when borrowing costs will start to be trimmed.

The chances of at least a 25 basis point rate cut by that month is priced at 63.4%. according to the CME FedWatch tool.

Investors’ acceptance of this timing, alongside recent strong economic data and signs some measures of core inflation are back to the Fed’s 2% target, helped deliver strong demand at the Treasury’s $42 billion auction of 10-year bonds on Wednesday.

The Treasury will auction $25 billion of 30-year bonds at 1 p.m. Eastern on Thursday.

U.S. economic data published on Thursday include the weekly initial jobless benefit claims report at 8:30 a.m. Eastern and December wholesale inventories at 10 a.m.

Richmond Fed President Tom Barkin is due to appear on Bloomberg Television at 8:30 a.m. and will also speak in New York at 12:05 p.m. Barkin told MarketWatch that it makes sense to be ‘patient’ before making rate cuts.

Helping to suppress global bond yields Thursday was news that consumer price inflation in China fell 0.8% year-on-year in January. That was the fastest deflation in 15 years and is another signal that the world’s second biggest economy is struggling said analysts.

“China is still mired in a property slump, affecting wealth perceptions and making consumers more cautious about spending big,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“Small stimulus measures aimed at increasing trading activity and lending into the economy have helped revive the Chinese stock market this week, but these are likely to be sticking plasters rather than a longer-term treatment for sluggish economy,” Streeter added.

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