Treasuries Extend Downward Trend Amid Interest Rate Uncertainty

Treasuries moved notably lower over the course of the trading day on Thursday, extending the downward trend seen over the past two weeks.

Bond prices staged a recovery attempt after seeing initial weakness but moved back to the downside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.5 basis points to 3.814 percent.

The ten-year yield closed higher for the ninth time in the past ten sessions, reaching its highest closing level in well over two months.

The continued weakness among treasuries partly reflected ongoing uncertainty about the outlook for interest rates.

The minutes of the Fed’s latest monetary policy meeting on Wednesday showed even central banks are unclear on whether further rate hikes will be necessary.

Some economists also saw the latest batch of U.S. economic data as support of more monetary policy tightening by the Fed.

The Labor Department released a report showing modest increase in first-time claims for U.S. unemployment benefits in the week ended May 20th, the uptick followed unusually large downward revisions to claims in the prior two weeks.

The Labor Department said initial jobless claims crept up to 229,000, an increase of 4,000 from the previous week’s downwardly revised level of 225,000.

Economists had expected jobless claims to inch up to 245,000 from the 242,000 originally reported for the previous week.

Jobless claims in the week ended May 6th were also downwardly revised to 231,000 from 264,000, which had marked the highest level since the week ended October 30, 2021.

“After climbing through much of Q1, initial claims have mostly moved sideways, a reminder that labor market conditions are still tight,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, “While we expect the Fed to leave rates steady at its June meeting, the minutes from this month’s FOMC meeting made clear that a more significant loosening of labor market conditions is needed to keep rate hikes permanently off the table.”

Meanwhile, revised data released by the Commerce Department showed economic growth in the U.S. slowed less than previously estimated in the first three month of 2023.

The Commerce Department said gross domestic product climbed by 1.3 percent in the first quarter compared to the previously estimated 1.1 percent increase. Economists had expected the pace of GDP growth to be unrevised.

Despite the upward revision, the GDP growth in the first quarter still reflects a slowdown from the 2.6 percent jump seen in the fourth quarter of 2022.

Traders also kept an eye on any developments in the U.S. debt ceiling negotiations amid lingering concerns about a potential default.

Reflecting the default concerns, Fitch Ratings placed the United States “AAA” credit on “rating watch negative,” signaling downside risks to U.S. creditworthiness.

Trading on Friday may be driven by reaction to a report on personal income and spending, which includes a reading on inflation said to be preferred by the Federal Reserve.

Developments regarding the debt ceiling negotiations may also attract attention along with reports on durable goods orders and consumer sentiment.

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