The policy-sensitive 2-year Treasury yield fell below 4.9% on Thursday after data showed weekly initial jobless claims hit a 10-week high and a broad-based flight-to-safety trade in the afternoon started.
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what drives the markets
Data released on Thursday showed initial jobless benefits claims hit a 10-week high of 211,000 in early March, lifting yields back in morning trading. Economists polled by The Wall Street Journal expected a total of 195,000 new claims for the seven days ending March 3.
The second phase of the decline in yields came Thursday afternoon as a result of “a flight to safety,” according to Michael Reinking, a senior market strategist at the New York Stock Exchange.
Thursday’s broad-based rally in bonds, which pushed the 30-year yield to a 3-month low, came as investors continued to absorb this week’s hawkish guidance from Federal Reserve Chairman Jay Powell and Friday’s jobs data. waited for
Analysts said a strong February nonfarm payrolls report on Friday and a CPI inflation report due on March 14 would encourage the Fed to raise its policy interest rate target by 50 basis points at its next meeting in two weeks.
Look: Wall Street sees a small increase of 225,000 in US jobs in February. A huge gain could harden the Fed’s rate hike.
According to the CME FedWatch tool, markets are pricing in a 63% likelihood that the Fed will raise its benchmark interest rate by 50 basis points on March 22, from 5% to 5.25%.
The Treasury’s $18 billion auction of 30-year bonds on Thursday produced good results, according to BMO Capital Markets, after a $32 billion 10-year bond sale a day earlier did poorly.
what the analysts are saying
,[T]Risks to a higher and faster growth trajectory have increased after Powell apparently lowered the bar for a 50 bp hike in March, possibly in an effort to dodge mounting criticism that the Fed has again fallen behind the inflation curve. Nevertheless, data will ultimately have the final say, and there is plenty of time and evidence to push the scale back to 25bp, especially with the Fed in data-dependent mode,” said Stephen Innes, managing partner at SPI Asset Management.
“Protests that helped slow growth last year – bottlenecks, fading stimulus – are easing this year, providing conditions for an economic re-acceleration. Such a rebound will often be welcomed. Although inflation is still running at around 5%, central bankers worry that an era of 1970s-style unchecked inflationary expectations may set in. As a result, the Fed has to be diligent in its fight against inflation. And the terminal fed-funds rate needs to go as high as 5.75%,” Innes said.
Credit: www.marketwatch.com /