US government debt yields were little changed Thursday morning as traders weighed lower-than-expected initial jobless claims and the implications of 2024 interest rate cuts by the Federal Reserve.
What is happening
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The yield on the two-year Treasury note BX:TMUBMUSD02Y fell 2.7 basis points to 4.325% from 4.352% on Wednesday.
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The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose less than one basis point to 4.111% from 4.103% on Wednesday.
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The yield on the 30-year Treasury note BX:TMUBMUSD30Y rose 1.3 basis points to 4.324% from 4.311% on Wednesday.
What drives the markets?
In data released Thursday, initial jobless claims fell below 200,000 in mid-January to the lowest level in 16 months. It fell to 187,000 from a revised 203,000 the previous week, a level not seen since September 2022.
The report is just the latest sign of strength in the US economy, on the heels of hotter-than-expected retail sales data on Wednesday, which created a coordinated reaction by Federal Reserve officials against expectations of interest rate cuts starting in March. On Thursday, Atlanta Fed President Rafael Bostic reiterated that he does not expect policymakers to lower borrowing costs until the third quarter.
Currently, markets expect a 97.4% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on January 31, according to the CME FedWatch tool. The chance of a 25 basis point rate cut by March is expected to reach 55.7%, down from 70.2% a week ago.
In other US data, the Philadelphia Fed's manufacturing gauge remained in negative territory for the fifth straight month, and housing construction fell to an annual pace of 1.46 million in December. The Treasury Department will auction $18 billion of 10-year TIPS, or inflation-protected securities, at 1 p.m. ET.
What analysts say
“The big question for markets right now is whether 2024 so far is just an understandable remnant of an exceptionally good end to 2023 or a sign of a more challenging year ahead,” said strategist Jim Reid and others at Deutsche Bank.
“We have corrected slightly this week after a series of relatively 'hawkish' central bank statements (versus market expectations), and surprisingly strong US retail sales yesterday, but there is still a sense of optimism assuming such levels of cuts without economic problems,” the Deutsche team said. Bank in note.
