U.S. Treasury yields fell Thursday after new jobless claims showed the number of people who applied for unemployment benefits in early June jumped to a nearly two-year high, while investors reassessed Federal Reserve policy trajectory following unexpected interest-rate rises by central banks in Australia and Canada.
What happened
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.537%
shed 3.1 basis points at 4.517% versus 4.548% at 3 p.m. Eastern Wednesday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.719%
dropped 6.8 basis points to 3.714% from 3.782% Wednesday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.888%
declined by 5.9 basis points to 3.882% compared with 3.941% Wednesday afternoon.
What drove markets
Two-year Treasury yields were lower on Thursday after hovering near their highest levels in three months amid renewed concerns that the Federal Reserve may keep interest rates higher for longer.
In U.S. economic data, the number of people who applied for unemployment benefits in early June jumped to a nearly two-year high of 261,000. New jobless claims in the seven days ended June 3 climbed by 28,000 from the prior week, the Labor Department said Thursday.
The shift up in short-term yields Wednesday followed a surprise increase in borrowing costs by the Bank of Canada as it continues to battle stubbornly high inflation. The BoC move reminded investors that even if the Fed pauses its tightening cycle after its policy meeting next week, it may still need to resume raising interest rates should inflation not decline quick enough from the current 4.9% to its 2% target.
See: Why U.S. stock-market investors were rattled by the Bank of Canada’s surprise rate hike
The U.S. consumer price index inflation report for May is due out next Tuesday morning.
Markets are pricing in a 72.5% probability that the Fed will leave interest rates unchanged at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool.
However, the chance of an additional 25-basis-point rate increase in July has risen to nearly 50%, up from just 10% a month ago. And whereas a few months ago the Fed was expected to have begun cutting rates from current levels by this fall, the market is now pricing in no such reduction until next year.
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