Bond Report

2-, 10-year Treasury yields end at three-week lows ahead of Friday’s jobs data

Referenced Symbols

Two- and 10-year Treasury yields fell further into their lowest levels in three weeks on Thursday, as investors look ahead to Friday’s nonfarm payrolls report for August.

What happened

  • The yield on the 2-year Treasury BX:TMUBMUSD02Y declined 2.7 basis points to 4.857% versus 4.884% on Wednesday.
  • The yield on the 10-year Treasury BX:TMUBMUSD10Y retreated 2.7 basis points to 4.090% from 4.117% on Wednesday afternoon.
  • Thursday’s level are the lowest for the 2- and 10-year yields since Aug. 10, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
  • The yield on the 30-year Treasury BX:TMUBMUSD30Y fell 2.3 basis points to 4.203% from 4.226% late Wednesday. Thursday’s level is the lowest since Aug. 9.

What drove markets

The Fed’s favorite inflation gauge crept higher in July in data published Thursday showing the personal consumption expenditure price index rose a mild 0.2%, but the increase in prices over the past year moved up to 3.3%.

The narrower core gauge, which strips out food and energy, met expectations by rising 0.2% month-on-month and 4.2% over the past year.

Financial markets turned their attention to Friday’s nonfarm payroll report, with economists expecting job gains to slow to 170,000 in August from 187,000 in the prior month.

Markets are pricing in a 88.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is seen at 37%, down from 45.5% a day ago.

In Thursday’s other U.S. economic updates, initial jobless claims fell by 4,000 to 228,000 in the week that ended Aug. 26. It’s the lowest level of claims in four weeks.

In Europe, the 10-year German bund yield BX:TMBMKDE-10Y is down 8.3 basis points at 2.465% after data on the eurozone’s consumer prices index.

What analysts are saying

“The PCE index has been moving in the right direction overall, but core inflation remains stickier than expected, keeping the data dependent — and ‘agile’ — Fed more likely to raise rates again this year,” said Quincy Krosby, chief global strategist for LPL Financial in Charlotte, N.C. “Moreover, the disinflation trend remains steady, but the Fed needs the numbers to edge lower before they can declare victory in its campaign to quell inflation.”