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Bond Report: Treasury yields steady as investors parse jobless claims, ECB policy updates

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U.S. Treasury yields were inching lower on Thursday as investors digested weekly data on U.S. employment and the latest policy statement from the European Central Bank.

What yields are doing
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.328%

    yields 1.326%, versus 1.333% on Wednesday as of 3 p.m. Eastern Time.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.948%

    rate was at 1.943%, after trading at 1.952% a day ago.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.224%

    yields 0.216%, compared with 0.218% on Wednesday.
  • The 10-year German bund rate
    TMBMKDE-10Y,
    -0.354%

    was at -0.330%, compared with -0.326% on Wednesday.
What’s driving the market

Treasury yields have been mostly rangebound during this holiday-abbreviated week, with the benchmark 10-year near its level from last Friday after touching a two-month high on Tuesday at around 1.37%.

New York Fed President John Williams, in a speech Wednesday hosted by St. Lawrence University, said that “assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.”

However, anecdotal data from the Federal Reserve’s 12 business districts, the Beige Book, suggests to some economists that more improvement may be needed to meet the central bank’s stated criteria of “substantial further progress” to start to reduce the Fed’s asset purchases and consider normalizing monetary policy.

Williams has stated that he thinks that the economy has met that standard. As New York Fed president he is a standing voter of the rate-setting Federal Open Market Committee.

Dallas Fed President Robert Kaplan also said on Wednesday that “he’d be advocating that we should announce a plan for adjusting these purchases in the September meeting, and begin shortly thereafter, maybe in October.” Kaplan isn’t a voting FOMC member this year.

A host of other Fed members are slated to speak on Thursday, including Chicago Fed President Charles Evans and San Francisco Fed President Mary Daly at around 11 a.m. ET.

The parade of officials also includes Kaplan at noon, Fed Gov. Michelle Bowman at 1 p.m., and Williams at 2 p.m. Minneapolis Fed President Neel Kashkari, Boston Fed President Eric Rosengren and Kaplan participate in an event jointly at 4 p.m.

Meanwhile, initial jobless claims fell by 35,000 to 310,000 in the week ended Sept. 4, the Labor Department said Thursday, marking the lowest level of claims since the pandemic struck in March 2020 and the biggest decline in claims since late June.

Economists polled by The Wall Street Journal had estimated new claims would total 335,000.

Investors were also watching the ECB, where Europe’s central bank said that it would conduct asset purchases under its pandemic emergency purchase program, or PEPP, at a “moderately lower pace” after accelerating purchases in recent quarters. “Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters,” the ECB said following a meeting of its Governing Council.

The ECB said PEPP purchases would continue with an envelope of €1.85 trillion through at least the end of March 2022. The ECB left key interest rates unchanged, as expected. ECB President Christine Lagarde was hosting a news conference at 2:30 p.m. Frankfurt time, or 8:30 a.m. Eastern.

ECB head Christine Lagarde was hosting a news conference to explain the central bank’s plans.

Separately, an auction of 30-year bonds also was on deck at 1 p.m.

What analysts are saying

“While 10y real rates will likely be stubbornly low over the medium term we anticipate a modest rise in coming months,” wrote analysts at BofA Global Research.

“This rate increase is likely to be associated with ongoing strong economic growth, finalization of infrastructure plan, Fed taper and peak USD liquidity. With the market already pricing 10y breakevens around our 2.4% year-end forecast, any rate rise in ’21 is likely to be led by real rates,” the researchers wrote.

Market Extra: ‘The lady isn’t tapering,’ says Lagarde as ECB slows asset purchases

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