Bond Report: 10-year Treasury yield edges higher ahead of labor data

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Long-dated Treasury yields edged higher early Thursday as investors awaited weekly data on U.S. jobless claims and tuned into policy decisions from the Bank of England and European Central Bank.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.795%

    rose to 1.787%, compared with 1.765% at 3 p.m. Eastern on Wednesday.

  • The 2-year Treasury yield
    TMUBMUSD02Y,
    1.161%

    was 1.158% versus 1.154% Wednesday afternoon.

  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    2.132%

    was at 2.13%, up from 2.093% late Wednesday.

What’s driving the market?

A reading on first-time claims for U.S. unemployment benefits for the week ended Jan. 29 is due at 8:30 a.m. Eastern. Economists surveyed by The Wall Street Journal expect initial claims to fall to 245,000 from 260,000 the previous week.

Automatic Data Processing on Wednesday surprised investors by reporting that private-sector payrolls fell 301,000 in January, likely taking a hit from the spread of the omicron variant of the coronavirus last month. While the ADP data has a shaky record when it comes to tracking the official jobs figures, the reading underlined the potential for a weak or even negative reading on Friday. Economists expect January nonfarm payrolls to show a rise of 150,000.

Investors are watching for clues to the tightness of the labor market and how it could affect inflation, shaping the Federal Reserve’s policy path as it prepares to begin raising interest rates. Weak January jobs data, however, isn’t seen putting a damper on the Fed’s plans given the role of the omicron variant.

Investors will also be paying attention to fourth-quarter productivity and unit-labor cost data, also due at 8:30 a.m. The Institute for Supply Management’s January services index is set for release at 10 a.m. Eastern, when investors will also see data on December factory orders.

The Senate Banking Committee will hold a confirmation hearing Wednesday morning for Sarah Bloom Raskin, Lisa Cook and Philip Jefferson, nominated by President Joe Biden to fill seats on the Federal Reserve Board.

The Bank of England, as expected, delivered a second rate increase at the conclusion of its policy meeting Thursday. The European Central Bank is expected to hold steady later in the session, but ECB President Christine Lagarde’s news conference will be closely watched after hotter-than-expected inflation data on Wednesday saw traders raise expectations for a rate increase by the end of the year.

What are analysts saying?

Looking to the confirmation hearing, Cook, Jefferson and Raskin have argued “in strong terms that inflation is too high and needs to be bought back to target,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note. “There has been speculation that the three will lean to the dovish side, what with Cook’s work focusing on equality and Jefferson on poverty creating speculation that they would focus more on the employment side of the Fed’s mandate than the inflation issue.

“They tried to dispel this idea in their letters but questioning will probably be tough today from Republican lawmakers,” he said.

“Ms. Lagarde will likely acknowledge that inflation will be higher for longer than the ECB envisaged in December,” wrote economists at UniCredit. “Importantly, however, we do not expect the Governing Council to change its inflation outlook for the medium term, as subdued wage growth and a gradual fading of the pandemic-driven imbalances will lead to a substantial decline in inflation in 2H22, and a stabilization below 2% in 2023-24.”