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Bond Report: Treasury yields edge lower as traders position for Friday’s U.S. jobs data

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U.S. government bond yields were slightly lower Thursday, as traders positioned for Friday’s monthly jobs report and looked past data showing that weekly jobless benefit claims hit a pandemic low.

What yields are doing
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.297%

    1.295%, compared with 1.301% on Wednesday at 3 p.m. Eastern Time.
  • The 2-year Treasury note rate
    TMUBMUSD02Y,
    0.211%

    was at 0.212%, versus 0.211% in the session before.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.924%

    was yielding 1.921%, compared with 1.919% a day ago.
What’s driving the market?

The drop in yields Thursday morning is likely a reflection of traders moving into somewhat neutral positions ahead of tomorrow’s labor-market data for August.

The August jobs report from the U.S. Labor Department on Friday could help to provide some guidance about the timing for tapering of bond purchases by the Federal Reserve, which have provided liquidity for financial markets during the pandemic.

Last Friday, Fed Chairman Jerome Powell in a Jackson Hole speech signaled that the central bank would likely aim to taper purchases of Treasurys and mortgage-backed bonds by the end of 2021 but didn’t provide precise timing, and he suggested that upcoming economic data remained a key determinant for monetary policy makers.

Data released on Thursday showed that the number of people applying for U.S. unemployment benefits at the end of August fell to a new pandemic low, suggesting the delta strain of the coronavirus hasn’t done much damage to the economy.

Initial jobless claims in the states dropped by 14,000 to 340,000 in the week ended Aug. 28, the government said. Economists polled by The Wall Street Journal had estimated new claims would total 345,000.

The drop in weekly jobless claims helped send U.S. stock indexes higher Thursday morning, even as investors also continued to buy Treasuries.

Meanwhile, the U.S. international trade deficit declined 4.3% in July to $70.1 billion, while productivity growth in the second quarter was revised to 2.1% from 2.3%.

Thursday’s batch of data follows a private-sector jobs report for August from Automatic Data Processing
ADP,
+0.06%

that showed 374,000 jobs were added for the month, well below the Dow Jones estimate of 600,000. 

Market participants will be hearing from Atlanta Federal Reserve President Raphael Bostic, as well as San Francisco Fed President Mary Daly later Thursday.

What analysts are saying
  • Thursday’s move in yields reflects “positioning in front of tomorrow’s data,” said Larry Milstein, senior managing director and head of government debt trading at R.W. Pressprich & Co. in New York. “Data today is really secondary compared to tomorrow’s and the moves are relatively muted” for now. “People don’t really know what tomorrow’s numbers will look like, and are just getting back to where they were before, which is neutral.”
  • “Treasuries remain in a consolidation pattern ahead of tomorrow’s jobs data. If the disappointing ADP data hasn’t recalibrated one’s expectations for the August payrolls report, there is nothing on offer via today’s information that will,” wrote Ian Lyngen and Ben Jeffery, part of the duo of interest rates analysts at BMO Capital Markets, in a Thursday research note. “We continue to view any backup in outright yield levels following NFP as a buying opportunity. It isn’t lost on us that this is the first employment update since Powell’s unofficial confirmation that tapering will be announced by year end,” the analysts wrote.
  • To really move the market tomorrow, “payrolls need to exceed 850k,” Jim Vogel, executive vice president at FHN Financial, wrote in a note. “The 5-yr UST should move close to .88% on such an outcome.   The magnitude of the increase in 10s would depend on some of the other metrics, particularly labor force participation.”

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