Bond Report: Treasury yields build upon post-Fed minutes rise, as weekly U.S. jobless claims creep above 200,000

United States

Treasury yields on Thursday extended a rise that followed the release of minutes from the Federal Reserve’s December meeting, which showed policy makers discussed more aggressive rate increases and the possibility of shrinking the central bank’s nearly $ 9 trillion balance sheet.

What are yields doing?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 1.739% rose to 1.735%, up from 1.703% at 3 p.m. Eastern on Wednesday. Through Wednesday, the yield has risen 20.7 basis points to begin 2022. Yields and debt prices move opposite each other.
  • The 2-year Treasury yield TMUBMUSD02Y, 0.873% rose to 0.874%, up from 0.828% Wednesday afternoon. Wednesday’s level was the highest for the 2-year rate since Feb. 28, 2020.
  • The 30-year Treasury bond TMUBMUSD30Y, 2.116% was up at 2.111%, compared with 2.086% late Wednesday.
What’s driving the market?

A selloff in Treasurys continued after Wednesday’s release of the minutes from the Dec. 14-15 meeting, which showed policy makers felt it might be necessary “to increase the federal-funds rate sooner or at a faster pace than participants had earlier anticipated.” The summary also showed that Fed officials had a wide-ranging discussion of how to tack away from its current easy stance by hiking rates and shrinking its balance sheet.

Read: Fed minutes paint a picture of a central bank ready to swiftly abandon its easy policy stance

The sharp rise in yields had reverberations across markets on Wednesday, with growth-oriented equities, which are more sensitive to rate moves, selling off. The tech-heavy Nasdaq Composite COMP, +0.34% fell 3.3% on Wednesday for its worst one-day fall since Feb. 25, and was attempting to bounce back along with the S&P 500 SPX, +0.14% in Thursday morning trading.

Data released early on the session showed that weekly jobless claims edged up to 207,000 but clung near a 52-week low, while the trade deficit widened sharply to $ 80.2 billion in November from a revised $ 67.2 billion in the prior month as imports surged.

Meanwhile, U.S. factory orders showed continued strength in November, with orders for U.S. manufactured goods rising 1.6%. That’s the 18th gain in the last 19 months. Separately, the Institute for Supply Management’s reading on activity in the services sector dropped to 62% last month from a record 69.1% in November. Readings above 50% signal expansion and numbers above 60% are considered exceptional.

St. Louis Fed President James Bullard, a 2022 voting member of the rate-setting Federal Open Market Committee, is set to talk about the economy at 1:15 p.m.

A Friday’s December jobs report looms for traders. Economists surveyed by The Wall Street Journal look for nonfarm payrolls to show a rise of 422,000, with the unemployment rate falling to 4.1% from 4.2%. Economists say risks to the jobs reading are skewed to the upside after a much stronger-than-expected reading Wednesday on December private-sector jobs from ADP.

What are analysts saying?

With the minutes out of the way and 10-year yields topping 1.70%, “attention will shift to Friday’s employment report. Despite a stretched technical profile, our bearishness remains intact — after all, this move is much more fundamental, Fed, and positionally driven than it is tactical,” wrote strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets. “As a result, 1.75% in 10s is vulnerable in the near term, as is the 1.77% cycle peak. The former could give way before payrolls, but for fresh cycle highs in 10s, the market will most likely require the impetus of a strong read from the labor market and/or yet another solid inflation read via Wednesday’s CPI release.”