Treasury Yields Stabilize Ahead of the $25 Billion 30-year Auction

Thursday morning saw a marginal increase in Treasury yields following a report on initial jobless benefit claims, suggesting businesses remain hesitant to implement layoffs.

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Here's a breakdown of the key movements in Treasury yields:

• The 2-year Treasury yield rose by 2.6 basis points to 4.446%, up from 4.420% on Wednesday.
• The 10-year Treasury yield advanced by 3 basis points to 4.138% from 4.108% on Wednesday.
• The 30-year Treasury yield climbed by 4.9 basis points to 4.358%, compared to 4.309% on Wednesday.

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The latest data released on Thursday revealed a decrease of 9,000 in initial jobless claims for the first week of February, settling at 218,000. This figure surpassed the expected 220,000 projected by economists surveyed by The Wall Street Journal. The positive employment data comes on the heels of the nonfarm payroll report for January, reinforcing the perception that the labor market remains remarkably robust.

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An upcoming event garnering attention in the market is the Treasury's auction of $25 billion in 30-year bonds scheduled for 1 p.m. Eastern on Thursday. Notably, the $42 billion auction of 10-year notes on Wednesday saw strong demand.

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The 10-year Treasury yield has found stability around 4.1%, and market focus remains on the CME FedWatch Tool, which indicates a 60.4% likelihood of the Federal Reserve implementing at least a quarter-point rate cut by May.

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Global bond yields have been influenced by overseas data revealing a 0.8% decline in consumer prices in China for January compared to the previous year. This marks the most significant deflationary pace in over 14 years, indicating China's susceptibility to deflationary pressures.

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According to strategists at BMO Capital Markets, Treasury yields are maintaining a narrow range as investors await the long-bond auction in the afternoon, marking the conclusion of the February refunding. Ian Lyngen and Vail Hartman from BMO Capital Markets noted in a report that despite the immediate relevance of the jobless claims data, the strength of the January employment report renders these figures essentially inconsequential. The outsized January payrolls figures and upward revisions provide the Federal Reserve with ample cushion to absorb softer data prints until more substantial questions arise regarding the employment market's trajectory.

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In summary, the slight uptick in Treasury yields on Thursday morning was influenced by positive jobless claims data and the broader economic context of a resilient labor market. The upcoming long-bond auction and continued stability in the 10-year Treasury yield add further layers to the market dynamics, with global factors, such as China's deflationary trends, also contributing to the overall sentiment in the bond market.

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