Bonds

10-year Treasury yield falls under 3%

Key Points
  • In Germany, the European Central Bank (ECB) is scheduled to host its next Governing Council meeting, which will see a rate decision before the U.S. open.
  • The U.S. Treasury is set to auction $29 billion in seven-year notes.

U.S. government debt yields slipped on Thursday as a fresh wave of buying pressured the 10-year Treasury note rate to under 3 percent.

Bond investors will also scrutinize a fresh group of economic data, with both jobless claims and durable goods reports out Thursday morning.

The yield on the benchmark 10-year Treasury note was lower at around 2.998 percent at 1:07 p.m. ET, while the yield on the 30-year Treasury bond was lower at 3.18 percent. Bond yields move inversely to prices.

"We've not only heard of overnight dip-buying from real money in 10s and 30s, but the Ministry of Finance data confirms that Japanese buying is back," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. "The region purchased overseas notes and bonds (including
Treasuries, EGBs, etc.) totaling $8.7 billion versus sales in the prior week of $7.4 billion. This represents the second largest weekly buying since July."

Markets around the globe have been keeping a close eye on the U.S. bond market as rising Treasury yields put investors on edge. On Tuesday, the yield on the 10-year Treasury note topped 3 percent, the first time it's done this in more than four years, and extended gains on Wednesday.

With yields on the apparent rise, market participants are wondering what this will mean for the global economy with many expecting this to mean higher interest rates from central banks.

Treasurys

Three percent on the 10-year Treasury note is "not surprising," said Doug Peebles, chief investment officer at Alliance Bernstein Fixed Income. "The Fed has moved up the short-end rate up to 2 percent, and the 2-year note yield has moved up to the 2.5 percent level ... It doesn't seem there's any significant slowdown in the economy."

The Fed has "an economy above its potential growth rate and it's been running at its potential growth rate from some time," he added. "They want to snug up financial conditions."

In economic data, orders for long-lasting manufacturing goods rose 2.6 percent in March, following an even bigger 3.5 percent advance for durable goods orders in February. The Commerce Department said the big rise was supported by a surge in demand for commercial aircraft.

Meanwhile, new applications for U.S. unemployment benefits dropped to their lowest level in more than 48 years last week, indicating that March's slowdown in job growth could have been a temporary outlier.

Initial claims for state unemployment benefits fell 24,000 to a seasonally adjusted 209,000 for the week ended April 21, the lowest level since December 1969, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims falling to 230,000 in the latest week.

The Treasury Department auctioned $29 billion in seven-year notes at a high yield of 2.952 percent on Wednesday. The bid-to-cover ratio, an indicator of demand, was 2.56. Indirect bidders, which include major central banks, were awarded 65.8 percent. Direct bidders, which includes domestic money managers, bought 12.7 percent.

In politics, French President Emmanuel Macron called upon the U.S. on Wednesday to engage more with the rest of the world and tackle nationalism. The leader went onto discuss the importance of fighting climate change and explaining why the nuclear deal with Iran must remain intact until a replacement is fulfilled.