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Yields on U.S. government debt were little changed Thursday morning as traders assessed lower-than-expected initial jobless claims and the implications on 2024 interest-rate cuts by the Federal Reserve.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell 2.7 basis points to 4.325% from 4.352% on Wednesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose less than 1 basis point to 4.111% from 4.103% on Wednesday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
advanced 1.3 basis points to 4.324% from 4.311% on Wednesday.
What’s driving markets
In data released on Thursday, initial jobless benefit claims fell under 200,000 in mid-January to the lowest level in 16 months. They dropped to 187,000 from a revised 203,000 in the prior week, a level that hasn’t been seen since September 2022.
The report is just the latest sign of a sturdy U.S. economy, following Wednesday’s hotter-than-forecast retail sales data, that’s created a concerted pushback by Federal Reserve officials against expectations for rate cuts starting as soon as March. On Thursday, Atlanta Fed President Raphael Bostic reiterated that he doesn’t expect policymakers to cut borrowing costs until the third quarter.
For now, markets are pricing in a 97.4% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Jan. 31, according to the CME FedWatch Tool. The chance of a 25-basis-point rate cut by March is seen at 55.7%, down from 70.2% a week ago.
In other U.S. data, the Philadelphia Fed manufacturing gauge remained in negative territory for the fifth straight month and housing starts fell to a 1.46 million annual pace in December. Treasury will auction $18 billion of 10-year TIPS, or inflation-protected securities, at 1 p.m. Eastern time.
What analysts are saying
“The big question for markets at the moment is whether 2024 to date is just an understandable hangover to an exceptionally good end to 2023 or a marker for a more challenging year ahead,” said strategist Jim Reid and others at Deutsche Bank.
“We have corrected back a bit this week after a slew of relatively ‘hawkish’ central bank speak (vs. market expectations), and yesterday’s surprisingly strong U.S. retail sales, but it still feels optimistic to assume such levels of cuts without economic troubles,” the Deutsche Bank team said in a note.
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