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Treasury yields edged lower Thursday, a day after the Federal Reserve released minutes of its May meeting and investors awaited weekly data on U.S. jobless claims and an updated reading on first-quarter gross domestic product.
What yields are doing
-
The 10-year Treasury note yield
TMUBMUSD10Y,
2.745%
was at 2.721%, down from 2.746% at 3 p.m. Eastern on Wednesday. -
The yield on the 2-year Treasury note
TMUBMUSD02Y,
2.464%
was 2.46% versus 2.50% Wednesday afternoon. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.983%
edged down to 2.962% compared with 2.965% late Wednesday.
What’s driving the market
Minutes of the central bank’s May 3-4 meeting showed that most policy makers felt 50 basis point rate hikes would likely be appropriate at the next couple of meetings. Also, a number of participants suggested price pressures “may no longer be worsening.”
Treasury yields have pulled back from highs set earlier this month when the 10-year rate briefly topped 3.2% to trade at a roughly 3 1/2-year intraday high. Yields have been lifted sharply in 2022 as investors have focused on inflation and the debate over the Federal Reserve’s ability to bring price pressures under control without sinking the economy into recession.
The Fed, which is set to begin unwinding its balance sheet on June 1, delivered a half percentage point rate increase earlier this month following a more traditional quarter-point, or 25 basis point, hike earlier this year. Fed officials had previously signaled at least two more half-point rises are in store.
The Treasury will auction $42 billion in 7-year notes
TMUBMUSD07Y,
Weekly data on jobless claims is due at 8:30 a.m., with first-time applications for benefits expected to tick down to 215,000 in the week ended May 21.
A revised look at U.S. first-quarter real gross domestic product is also due at 8:30 a.m. Economists surveyed by The Wall Street Journal look for the data to be revised to show the economy contracted at a 1.4% annualized rate versus an initial estimate of a 1.3% contraction.
An index on April pending home sales is scheduled for 10 a.m.
Friday will bring a look at the Fed’s preferred inflation indicator, the core personal-consumption expenditures inflation reading.
What analysts are saying
Bond investors are in the same boat as those in other markets, said Tom Essaye, founder of Sevens Report Research, in a Thursday note: “Wondering if the Fed will actually hike as much as they say, or if they will ‘chicken out’ and allow more inflation. We won’t know that for likely another month (or two), but Friday’s Core PCE Price Index is the next data point on that journey. If the Core PCE Price Index underwhelms that will strengthen the camp that thinks the Fed won’t hike as much as markets currently fear (if that happens, it’ll be negative for the dollar and positive for stocks).”
