Treasury yields ended at their lowest levels over the past three to five weeks on Thursday as traders considered a range of risks to the U.S. economy, labor market and Federal Reserve policy.
is reading: Markets are anticipating the threat of a “Fed policy error” after Powell backed away from cutting interest rates in March
What happened
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The yield on the two-year Treasury note BX:TMUBMUSD02Y fell 3.3 basis points to 4.194% from 4.227% on Wednesday. Thursday's level is the lowest since January 12, based on 3pm ET numbers from Dow Jones market data. Yields move in the opposite direction to prices.
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The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 10.3 basis points to 3.862% from 3.965% on Wednesday. Thursday's level is the lowest since December 29.
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The yield on the 30-year Treasury note BX:TMUBMUSD30Y fell 11.4 basis points to 4.102% from 4.216% on Wednesday. Thursday's level is the lowest since January 3.
What drove the markets?
In data released Thursday, initial jobless claims rose to their highest level in nearly three months at 224,000 at the end of January, a sign of a potential pullback in the strong labor market.
Meanwhile, traders have pushed back on the timing of the Fed's first rate cut in 2024, and now see a 95.5% chance of at least a quarter-point cut by May. However, they still mostly expect the central bank to cut borrowing costs to between 3.75%-4% before the end of the year from the current level of 5.25%-5.5%.
While Federal Reserve Chair Jerome Powell was able to convince traders to take the prospect of a March rate cut this week, he was unable to convince them to abandon their expectations of up to six quarter-point rate cuts in 2019. 2024.
Analysts said concerns about US regional banks may have overshadowed the Fed's policy announcement on Wednesday. New York Bancorp NYCB Community Stock,
It fell on Thursday and Wednesday after the bank reported a surprise loss and revealed it was facing difficulties in commercial real estate. This, in turn, has raised broader concerns about regional banks in general.
The bond market started the week with a four-week swing on the 10-year yield, holding steady in the 4th percentile versus the past three years – according to Bill Mears, head of capital market research at U.S. Bank's Minneapolis Wealth Management. This is a sign that investor expectations about Fed policy and inflation have stabilized heading into 2024, he said in an email to MarketWatch.
In other US data released on Thursday, fourth-quarter productivity rose 2.7% compared to the previous year. The final S&P manufacturing PMI reading for January came in at 50.7, slightly higher than previous estimates and the strongest improvement in manufacturing performance since September 2022. Meanwhile, the ISM factory index improved during January, but remained in contractionary territory.
Abroad, the Bank of England left interest rates unchanged at 5.25%.
What analysts say
The Fed's hawkish statement on Wednesday and Powell's press conference “dampened the market's appetite and expectations for a rate cut in March.” The committee will have an additional two months of inflation data before its next meeting, but “Unless we have a rapid deterioration in the economy and workforce, we will not see a decline in March.” Investments in Wisconsin.
“We reiterate Chairman Powell's warning about services inflation. With goods inflation already below 2% and negative in some areas, achieving the Fed's 2% target will depend heavily on Low service inflation.
