BOND REPORT: Treasury Yields Tick Higher After Jobless Claims, Industrial Production

By Sunny Oh Features Dow Jones Newswires

Industrial production for July increases 0.2%

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Treasury yields mostly rose on Thursday after a spate of data showed the labor market in the pink and the economy growing at a steady clip, even though middling industrial production numbers hinted at a more mixed picture for the growth outlook.

The 10-year Treasury note's yield edged 0.9 basis point higher to 2.234%, while the 30-year bond's yield rose 1.3 basis point to 2.820%. But the yield for the 2-year Treasury note was relatively flat at 1.330%. Bond prices move inversely to yields.

Treasury yields added to its climb in morning trade after jobless claims fell 12,000 to a six-month low of 232,000 (http://www.marketwatch.com/story/us-jobless-claims-fall-to-six-month-low-of-232000-2017-08-17) in the week ending Aug. 12, a sign that the strongest labor market in close to two decades shows no sign of slackening. The U.S. unemployment rate currently stands at 4.3%, a 16-year low (http://www.marketwatch.com/story/us-gains-209000-jobs-in-july-unemployment-retouches-16-year-low-of-43-2017-08-04).

At the same time, the Philadelphia Fed business outlook survey's diffusion index, its broadest gauge of manufacturer's health for the Mid-Atlantic region, dipped slightly to 18.9 in August from 19.5 in July (http://www.marketwatch.com/story/philadelphia-fed-factory-gauge-eases-but-hints-at-future-strength-in-august-2017-08-17). Any number above zero represents a growth in economic activity.

But yields pared their rise after industrial production data for July increased by 0.2%, its sixth straight month of gains, below the 0.3% consensus forecast from economists surveyed by MarketWatch.

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"Overall, no big impact on third-quarter growth but it doesn't help cooling expectations for further Fed rate hikes this year. There are still four months to go but policy makers seem to be getting a little more cautious on the inflation front," noted Jennifer Lee, senior economist for BMO Capital Markets.

See: Fed won't like soft July CPI data but has four months to get over it (http://www.marketwatch.com/story/fed-wont-like-soft-july-cpi-data-but-has-four-months-to-get-over-it-2017-08-11)

The choppy trading in Treasurys follows Wednesday's session when the release of the Federal Reserve's minutes aided bond-buying. The minutes revealed central bank officials were beginning to show heightened concerns over the perplexing absence of inflation amid a strong labor market, an alignment with the market's pessimism on the odds for higher consumer prices. It also suggested the Fed could act in a more cautious manner when it decides on the appropriate pace for monetary tightening.

This marked a small concession and a retreat away from the party line that had argued the recent spate of lackluster inflation readings was "transitory" and due to one-off factors. But most members of the policy-setting Federal Open Market Committee suggested the winding down of the balance sheet should begin in September.

Also read: Some Fed members say bank can be 'patient' on interest rates due to low inflation (http://www.marketwatch.com/story/some-fed-members-say-bank-can-be-patient-on-interest-rates-due-to-low-inflation-2017-08-16)

In the wake of the Fed minutes, traders looking for further commentary can look to speeches from Dallas President Robert Kaplan, voting member, at 1 p.m. Eastern and Neel Kashkari, Minneapolis Fed President, also a voting member, soon after at 1:45 p.m.

Like the U.S., European traders dealt with a raft of economic data, including inflation data that showed the annual inflation rate across the eurozone at 1.3% in July, unchanged from June. The German 10-year government bond's yield was relatively flat at 0.441%.

(END) Dow Jones Newswires

August 17, 2017 10:03 ET (14:03 GMT)