U.S. Treasury yields retreated modestly on Thursday as the latest economic data painted a mixed picture of the economy, putting greater importance on the July employment report, set to be released Friday.
The yield on the benchmark 10-year U.S. Treasury note dipped 3.1 basis points to 2.240%, while the 2-year note yield gave up 1 basis point at 1.351%. The yield on the 30-year U.S. Treasury bond , known as the long bond, skidded 3 basis points lower at 2.820%.
Yields rise as debt prices fall.
Government-bond prices have been trading within a relatively tight range over the past several week but mostly drifting lower, as sluggish inflation figures and a series of lackluster reports have supported a go-slow approach for the Federal Reserve as it aims to lift rates and shrink a $4.5 trillion asset portfolio, accumulated during the heart of the financial crisis begun in 2008.
Thursday’s economic reports continued that trend of reports showing tepid growth.
The Institute for Supply Management said its nonmanufacturing index fell to 53.9% (https://www.instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?navItemNumber=30887) in July from 57.4 in June. Economists polled by MarketWatch expected a reading of 56.9. Any reading above 50 indicates improving conditions. Separately, a weekly report on jobless claims on Thursday indicated that claims fell by 5,000 in the latest week, coming in near a 44-year low (http://www.marketwatch.com/story/us-jobless-claims-fall-by-5000-to-240000-2017-08-03).
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“We think the upside in rates just isn’t there, and as such, we’re underweight on fixed income and would rather be in risky assets than Treasurys,” said Rui De Figueiredo, chief investment officer and co-head of the Solutions/Multi-Asset Group at Morgan Stanley Investment Management. “The likelihood of a negative surprise from the Fed is higher than the odds of a positive one.”
He estimated that the 10-year could yield between 2.5% and 2.75% by the end of the year.
A report on Thursday from the Organization for Economic Cooperation and Development indicated that consumer prices among the world’s 20 largest economies was at an eight-year low, even as optimism about the health of many countries is looking up. It is a point that has bedeviled academics, strategists and investors alike since an improving economic climate, highlighted by solid jobs growth in the U.S., should theoretically lead to a pick up in inflation.
Inflation erodes the value of the fixed value of Treasurys, with an absence of rising prices helping to support bond buying, weighing on yields.
Mark Newton, technical analyst and founder of Newton Advisors, in a Thursday research note said the 10-year Treasury holding above a yield of 2.22% in the near term will be important, with a push below that level suggesting that momentum lower could accelerate. However, he said investors shouldn’t get too worked up about recent bond buying.
“Holding 2.22[%] will be important for Treasury bears and for now, [the market] can’t make too much of this pullback in yields,” Newton wrote.
Also on the radar for traders was a Bank of England statement on interest-rate policy (http://www.marketwatch.com/story/boe-says-rates-may-rise-faster-than-markets-expect-2017-08-03), followed by a news conference featuring BOE Gov. Mark Carney. The BOE made no changes to its monetary policy but indicated that from here, rates may rise faster than markets expect.
Against that backdrop. U.K. 10-year Treasury yield were down 7.9 basis points at 1.16%, while those for comparable, benchmark German bonds, known as bunds , slipped 2.8 basis points at 0.46%.
For Friday’s highly anticipated July jobs report, economists surveyed by MarketWatch produced a consensus forecast for a 180,000 rise in July nonfarm payrolls, while the unemployment rate is predicted to tick down to 4.3% from 4.4%. Average hourly earnings are seen rising 0.3% after a 0.2% rise in June
(END) Dow Jones Newswires
August 03, 2017 11:32 ET (15:32 GMT)