Bond Report: Treasury yields end higher as jobless claims fall

What are yields doing?

• The yield on the 10-year Treasury note TMUBMUSD10Y, 1.211% was at 1.217%, compared with 1.183% at 3 p.m. Eastern on Wednesday, based on Dow Jones Market Data. Yields and debt prices move in opposite directions.
• The 2-year Treasury note yield TMUBMUSD02Y, 0.204% was at 0.200% versus 0.182% Wednesday afternoon.
• The 30-year Treasury bond yield TMUBMUSD30Y, 1.859% was at 1.862% from 1.840% late Wednesday.

What’s driving the market?

The number of people who applied for U.S. unemployment benefits at the end of July fell close to a pandemic low, indicating the economy has avoided major damage so far from the delta strain of the coronavirus. Initial jobless claims dropped by 14,000 to 385,000 in the week ended July 31, the government said Thursday. That matched the forecast of economists polled by The Wall Street Journal.

Meanwhile, the U.S. trade deficit climbed 6.7% in June to an all-time high, reflecting a big appetite among Americans for imports. Higher prices for oil and other goods also played a role. The trade gap widened to $75.7 billion from $71 billion in the prior month, the government said Thursday.

Investors will now turn their attention to Friday’s July jobs report from the U.S. Labor Department, which is expected to show the U.S. economy added 845,000 jobs, while the unemployment rate is seen as declining to 5.7% from 5.9%.

Treasury yields had traded in a wide range Wednesday, sliding after a weaker-than-expected read on July private-sector payrolls then bouncing back after a stronger-than-expected reading on service-sector activity from the Institution for Supply Management.

What are analysts saying?

On the positive side, “the 10-year yield bounced off the 1.13% level (which seems to be support) and clearly the 10-year can react to better-than-expected data,” Tom Essaye, founder of the Sevens Report Research, said in a note. “Negatively, there remain aggressive buyers on Treasury dips and it’s going to take a real, impactful headline to break this negative technical momentum in bonds.”

Candidates to provide that spark include the jobs report on Friday, if it comes in “too hot,” he said. A peak and sharp fall in COVID cases, upcoming inflation data and remarks coming out of the Federal Reserve symposium in Jackson Hole, Wyoming, later this month are also potential catalysts.

Meanwhile, Jim Cielinski, global head of fixed income at Janus Henderson Investors, said that “markets can readily digest an orderly policy tightening” from the Fed.

“In recent months, macro and micro fundamentals have broadly improved as the market anticipated, while longer-maturity U.S. Treasury bond yields have fallen and credit markets have generally rallied,” Cielinski wrote in a note released Thursday. “Economic growth, globally, is accelerating and corporate bond markets are largely priced for it to continue.”