US yields jump after employment data; two-year Treasury note hits highest level since 2007
labor market data showed initial jobless claims increased slightly for the week ended July 1 to 248,000, just above the 245,000 estimate, but still below the 280,000 economists believe would indicate a significant slowing in job growth
- Jul 6, 2023,
- Updated Jul 6, 2023 8:33 PM IST
U.S. Treasury yields climbed on Thursday after data on the labor market increased expectations the Federal Reserve will be aggressive in raising interest rates to rein in stubbornly high inflation towards its 2% target rate.
Private payrolls jumped by 497,000 jobs last month, the ADP National Employment report showed, well above the 228,000 forecast and indicating the labor market remains resilient despite the Fed's efforts to slow the economy.
Other labor market data showed initial jobless claims increased slightly for the week ended July 1 to 248,000, just above the 245,000 estimate, but still below the 280,000 economists believe would indicate a significant slowing in job growth. In addition, a report from Challenger, Gray & Christmas announced the lowest number of layoffs by U.S.-based employers since October 2022.
"This data has been unbelievable strong, especially the jobs data just for some reason continues to surprise to the upside," said Tom di Galoma, co-head of global rates trading at BTIG in New York.
"I’m not sure where it is all coming from, I think we are headed into a slowdown but businesses are still looking for employees."
The yield on 10-year Treasury notes US10YT=RR was up 11 basis points to 4.055% after hitting 4.069%, its highest since March 3. The 10-year yield is on track for its third straight session of gains.
Interest rate futures were pricing in a 92.4% chance of a 25 basis point rate hike at the Fed's July 25-26 meeting, up from 90.5% a day prior, with expectations for a second hike at the November meeting also increasing.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 15 basis points at 5.101% after rising to 5.120%, the highest since Juner 2007.
Federal Reserve Bank of Dallas President Lorie Logan said Thursday that there was a case for a rate rise at the June policy meeting, when the central bank paused after 10 straight increases, and said more rate hikes are needed.
The yield on the 30-year Treasury bond US30YT=RR was up 4.8 basis points to 3.992%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 105.0 basis points after seeing its deepest inversion since 1981 on Monday.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.229%, after closing at 2.233% on Wednesday.
The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.26%, indicating the market sees inflation averaging 2.3% a year for the next decade.
U.S. Treasury yields climbed on Thursday after data on the labor market increased expectations the Federal Reserve will be aggressive in raising interest rates to rein in stubbornly high inflation towards its 2% target rate.
Private payrolls jumped by 497,000 jobs last month, the ADP National Employment report showed, well above the 228,000 forecast and indicating the labor market remains resilient despite the Fed's efforts to slow the economy.
Other labor market data showed initial jobless claims increased slightly for the week ended July 1 to 248,000, just above the 245,000 estimate, but still below the 280,000 economists believe would indicate a significant slowing in job growth. In addition, a report from Challenger, Gray & Christmas announced the lowest number of layoffs by U.S.-based employers since October 2022.
"This data has been unbelievable strong, especially the jobs data just for some reason continues to surprise to the upside," said Tom di Galoma, co-head of global rates trading at BTIG in New York.
"I’m not sure where it is all coming from, I think we are headed into a slowdown but businesses are still looking for employees."
The yield on 10-year Treasury notes US10YT=RR was up 11 basis points to 4.055% after hitting 4.069%, its highest since March 3. The 10-year yield is on track for its third straight session of gains.
Interest rate futures were pricing in a 92.4% chance of a 25 basis point rate hike at the Fed's July 25-26 meeting, up from 90.5% a day prior, with expectations for a second hike at the November meeting also increasing.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 15 basis points at 5.101% after rising to 5.120%, the highest since Juner 2007.
Federal Reserve Bank of Dallas President Lorie Logan said Thursday that there was a case for a rate rise at the June policy meeting, when the central bank paused after 10 straight increases, and said more rate hikes are needed.
The yield on the 30-year Treasury bond US30YT=RR was up 4.8 basis points to 3.992%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 105.0 basis points after seeing its deepest inversion since 1981 on Monday.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.229%, after closing at 2.233% on Wednesday.
The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.26%, indicating the market sees inflation averaging 2.3% a year for the next decade.