Treasury yields reached a two-week high on Thursday following strong government auctions and in anticipation of revisions to the consumer-price index. The 2-year Treasury yield rose to 4.454%, the 10-year yield jumped to 4.169%, and the 30-year yield climbed to 4.376%. This marked the highest levels since late January.
The Treasury’s $25 billion auction of 30-year bonds was met with “really good demand” from indirect bidders, with real money taking a higher percentage than usual at 70.7%. Direct bidders took a below-average 14.5% and dealers received 14.8%. The auction came after a record $42 billion auction of 10-year notes, which also saw solid demand.
Investors are now waiting for Friday’s revisions to the consumer-price index, with concerns that the updated figures may show higher inflation than initially reported for the end of 2023. Earlier data released on Thursday showed that initial jobless claims fell by 9,000 to 218,000 in the first week of February, indicating a stronger-than-expected labor market.
The stabilization of the 10-year Treasury yield around 4.1% has led the market to focus on a 62.7% likelihood of at least a quarter-point rate cut from the Federal Reserve by May, according to the CME FedWatch Tool. Global bond yields were also affected by data from China, which showed a 0.8% decline in consumer prices in January compared to the previous year, suggesting deflation in the country.
These developments in Treasury yields and government auctions highlight the ongoing concerns about inflation and its impact on the economy. The strong demand for Treasury bonds indicates that investors are seeking safe-haven assets amidst uncertainty. The upcoming revisions to the consumer-price index will provide further insight into inflation levels and may influence future market movements.
The labor market’s resilience, as evidenced by the falling jobless claims and strong nonfarm-payroll report, contributes to the debate around future interest rate cuts by the Federal Reserve. While the current focus is on a potential rate cut by May, market conditions and economic data will continue to shape the central bank’s decision-making process.
Internationally, the deflationary trend in China adds another layer of complexity to the global economic landscape. Falling consumer prices in the world’s second-largest economy may have ripple effects on other countries and their inflation rates.
Overall, the recent developments in Treasury yields and government auctions reflect the ongoing uncertainty surrounding inflation and its potential impact on the economy. Investors will closely monitor the revisions to the consumer-price index and continue to analyze economic data for clues about future interest rate decisions.
