Treasury Yields Advance as Jobs Data Shows Layoffs Remain Low

Yields on U.S. government bonds showed a slight increase on Thursday morning following data indicating a resilient labor market.

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Key developments:

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) rose by 2.1 basis points to 4.957% from Wednesday's 4.936%.
• The yield on the 10-year Treasury (BX:TMUBMUSD10Y) remained relatively unchanged at 4.522% compared to Wednesday afternoon.
• The yield on the 30-year Treasury (BX:TMUBMUSD30Y) increased by 2.7 basis points to 4.682% from Wednesday's 4.655%.

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Market drivers:

Recent data revealed that initial jobless claims fell to 217,000 last week, indicating a robust labor market with consistently low levels of claims. This figure was slightly below economists' expectations of 220,000 new claims.

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At 1 p.m. Eastern time, the U.S. Treasury is set to auction $24 billion of 30-year bonds, with market participants hoping for a positive reception similar to the previous day's $40 billion 10-year sale.

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Federal Reserve Chairman Jerome Powell is scheduled to participate in an International Monetary Fund panel at 2 p.m., raising questions about whether he will address the recent easing of financial conditions.

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Market expectations:

The market is currently pricing in a 90.5% probability that the Fed will maintain interest rates between 5.25% and 5.5% on December 13, according to the CME FedWatch Tool. The likelihood of a 25-basis-point rate hike to a range of 5.5% to 5.75% by January stands at 17.8%.

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Strategists' perspectives:

BMO Capital Markets strategists Ian Lyngen and Ben Jeffery noted strong activity during the overnight session, with volumes more than twice the recent trend. They observed significant interest in the long bond, suggesting heightened investor attention to the upcoming refunding auction. However, the translation of this interest into robust participation and demand remains uncertain.