Bond Report: Treasury yields hold ground as bond-market remains range-bound

Bond Report

U.S initial jobless claims came in at 2.438 million on a seasonally adjusted basis

U.S. Treasury yields struggled for direction on Thursday in listless trading despite a rush of economic data, increased geopolitical tensions, and speeches from senior Federal Reserve officials.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.681%

was down 0.2 basis point to 0.677%, while the 30-year bond yield
TMUBMUSD30Y,
1.397%

was virtually flat at 1.399%. The rate for the 2-year note
TMUBMUSD02Y,
0.149%

inched 0.6 basis points higher to 0.160%.

The 10-year note hasn’t moved outside of a tight range between 58 basis points and 78 basis points since April 22, according to BMO Capital Markets.

What’s driving Treasurys?

Investors pondered U.S. – China tensions after after President Trump tweeted that China’s “disinformation and propaganda attack on the United States and Europe is a disgrace,” while the White House issued a broad attack on Beijing’s economic policies, military buildup, disinformation campaigns and human rights violations. In addition, U.S. Senators proposed sanctions on Chinese officials over the proposal of a National Security Law in Hong Kong.

In U.S. economic data, new applications for unemployment benefits rose to 2.438 million. Economists polled by MarketWatch had forecast an increase of 2.35 million, on a seasonally adjusted basis. On an unadjusted basis 4.4 million Americans lost filed for benefits during the week ended May 16.

In other data, the Markit services flash purchasing managers index for May rose to 36.9 from 26.7, while the manufacturing gauge ticked up to 39.8 from 36.1. Any reading below represents a contraction in economic activity.

As for the U.S. central bank, Fed Chairman Jerome Powell said the economic fallout from the coronavirus pandemic was falling on poorer Americans. Meanwhile, Fed Vice Chairman Richard Clarida said more fiscal and monetary stimulus could be called for.

What did market participants’ say?

“What will motivate the Treasury market from the current stasis of sideways drift remains the operative question, but with no data or scheduled Fedspeak ahead of a long holiday weekend, that development is unlikely to arrive on Friday,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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