Treasuries Resurgent After Post-ECB Blip, Taking Yields Below 3%
2022.07.22 07:34
Treasuries Resurgent After Post-ECB Blip, Taking Yields Below 3%
(Bloomberg) — US Treasury yields tumbled after weaker-than-expected economic data reversed early selling pressure in the wake of a half-point rate hike by the European Central Bank.
The five-year yield fell as much as 19 basis points to around 2.97% in New York trading, while the 10-year yield dropped as much as 16 basis points to 2.87%, sharply reversing an earlier spike. Australia bonds echoed the rally in Treasuries, with yields on the nation’s 10-year notes falling as much as 14 basis points to 3.43% on Friday.
That early session selling pressure, spurred by the ECB’s move, proved short lived after a trio of data releases suggested a weakening trend in the economy. Additional buying was driven by sliding equities and gained additional momentum after a White House statement said President Joe Biden tested positive for Covid-19.
The data saw “yields come off the highs after the knee jerk selloff that followed the ECB’s 50 basis point hike,” BMO Capital Markets wrote in a note.
The Philadelphia Federal Reserve regional survey arrived well below consensus estimates and was the lowest reading since May 2020. Weekly jobless claims and the Conference Board’s index of leading indicators were also weaker than forecast, and supported the Treasury market rebound as investors look ahead to the upcoming US central bank decision next Wednesday.
Traders are on the lookout for a sustained rise in weekly jobless claims as more companies signal hiring freezes and layoffs. The Fed has sought to cool the solid jobs market with its aggressive path of rate hikes for this year in order to bring down elevated inflation. Market pricing suggests officials will jack up rates by around 75 basis points next week, though a larger move is possible.
Thursday’s drop in Treasury yields was accompanied by a sharp rebound in eurozone debt markets, although bonds in Italy lagged the rally as the country braced for fresh elections following the resignation of Prime Minister Mario Draghi.
Trading in the Treasury inflation-protected securities market saw a rally during the New York morning ahead of a new $17 billion 10-year TIPS sale, reducing the usual concession seen before Treasury auctions. Demand was “soft,” with the sale settling at 0.63% versus a level of 0.60% indicated prior the auction, according to a note from BMO.
(Updates with Australia bond yields in second paragraph)
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