Bond Report: 10-year Treasury hangs around 0.6% as U.S. households seen on shaky footing, jobless claims climb

Bond Report

Unemployment claims surge by another 3.8 million in late April

U.S. Treasury yields held their lows on Thursday after economic data illustrated the weakening financial picture for U.S. households, with a rise in jobless claims likely corresponding to the highest unemployment rate since the Great Depression of the 1930s.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.618%

fell 0.6 basis points to 0.619%, leaving it down 7.2 basis points for the month. The 2-year note rate
TMUBMUSD02Y,
0.188%

fell 1.1 basis points to 0.186%, extending a 3.6 basis point drop in April.

The 30-year bond yield
TMUBMUSD30Y,
1.263%

was up 2.4 basis points 1.267%, trimming it month long drop to 7.9 basis points. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Investors faced a deluge of data that highlighted how households, the engine of the U.S. economy, were faltering. Initial jobless claims climbed 3.8 million in late April, pushing the total claims filed during the coronavirus crisis to about 30 million. Economists estimate this corresponds to an unemployment rate of above 15%.

Consumer spending fell 7.5% in March, while personal incomes fell 2%. Yearly growth in personal-consumption expenditures, the Fed’s preferred inflation gauge, fell sharply to 1.3% in March, down from 1.8% in the prior month.

Slower economic growth can give a lift to values for government paper, as investors see a diminished risk of inflation eroding a bond’s fixed-interest payments.

In the afternoon though CME Treasury futures took a hit after Boeing said it would sell $25 billion of bonds to build up its cash reserves. The corporate debt sale may have led underwriters to hedge for any surge in borrowing costs by placing a short position in government bonds, pushing yields higher. When all the issuance is sold, the underwriters will buy the bonds back to “cover” the short.

See: Three years of eurozone economy wiped away after historic first-quarter drop

The European Central Bank announced after its policy meeting that it would leave its key lending rates unchanged, as expected, and didn’t increase the size of its €750 billion ($815 billion) asset-buying program. Still, the ECB said it would launch a new loan program intended to inject liquidity into banks by supporting short-term funding markets in Europe.

In recent days, analysts have noted costs to borrow cash between European banks have remained elevated, even as such costs have come down for U.S. financial institutions.

What did market participants’ say?

“Over 30 million Americans have filed unemployment claims since late March. As bad as those numbers were, the bond market only moved a few basis points,” said Kevin Giddis, chief fixed income strategist at Raymond James.

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