BOND REPORT: Treasury Yields Gain On Jobless Claims And Producer-price Data
10-year note yields on track for eight-week high
Treasury prices slipped, pushing up yields, after producer prices rose and continued jobless claims sank to its lowest levels in more than 28 years, setting up the Federal Reserve to hike rates in preparation for higher inflation.
The yield for the 10-year note added 0.2 basis point to 2.417%, keeping it on track to post another eight-week high. Yields move in the opposite direction of bond prices; one basis point is equal to one hundredth of a percentage point.
The yield for the 30-year bond, or the long bond, gained 1.4 basis point to 3.055%, while the yield for the 2-year note showed no change at 1.359%.
Yields rose as traders responded to Thursday morning's economic data. April's producer-price index was up 2.5% (http://www.marketwatch.com/story/us-producer-prices-jump-05-in-april-2017-05-11) in past 12 months through April, the largest gain since February 2012. The Labor Department announced new applications for U.S. unemployment benefits fell 2,000 to 236,000 for the week ended May 6, while the number of people continuing to receive jobless benefits fell 61,000 to 1.91 million in the week ended April 29.
See: Continued jobless claims at lowest level in more than 28 years (http://www.marketwatch.com/story/continued-jobless-claims-at-lowest-level-in-28-years-2017-05-11)
"Today's data gave the Fed of more evidence that labor conditions were tight, and that inflation would be nearing its 2% target. The increase in the PPI also reinforces the trend we're seeing in consumer prices," said Sharon Stark, fixed income strategist for Incapital.
The prospect of higher inflation could make the Federal Reserve comfortable with raising its short-term benchmark interest rate. Higher rates can have a corrosive effect on existing bonds as they need to be discounted to match the returns of higher-yielding new issuance.
Bank of England Gov. Mark Carney said strong economic growth and boosts to household spending could warrant more rate increases than others expected, noting inflation expectations for 2017 had risen from 2.4% to 2.7%. The U.K. central bank kept rates steady on Thursday in line with analysts' expectations.
Carney's comments drove gilts lower in early morning trading with the yield for the 10-year U.K. benchmark government bond falling as low as 1.158%, before rising to 1.182% after the U.S. economic data. The pound sterling strengthened 0.63% to 1.285 dollars per pound.
"Part of the negative sentiment was expectations for central bank rate increases, you will continue to see upwards pressure on high-term short yields," said Sharon.
Traders will look ahead to an auction of $15 billion of 30-year bonds after weak demand for an auction of 10-year notes on Wednesday pulled yields higher. Sales of U.S. government paper can influence trading in the overall market.
(END) Dow Jones Newswires
May 11, 2017 10:38 ET (14:38 GMT)