U.S. bond yields were taking a breather Friday after a sharp march lower in November, as recent data pointed to a slowing economy and investors braced for a shortened Thanksgiving holiday week.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was 4.89%, up 7 basis points. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was 4.45%, virtually unchanged from a day ago. The 10-year yield was 5% as recently as mid-October. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was 4.61%, down about 1 basis point.
What’s driving markets
Traders in the U.S. government bond market were taking a breather after an explosive rally in the first half of November which pushed down long-duration bond yields by about 50 basis points from a 16-year high of about 5% in October.
“The rally is being driven by short covering,” said Kent Engelke, chief economic strategist at Capitol Securities Management, in a phone call with MarketWatch. “Now, people are starting to look back and say, “Did we go too far too quickly?’”
Engelke said there currently looks to be more “risk than reward” in the bond market, given that already thin liquidity in the Treasury market could become even worse in a shortened holiday week ahead for Thanksgiving.
He also thinks the fall in U.S. inflation may slow, as other unions react to big recent wage increases won by autoworkers, and this could keep the Federal Reserve on its toes.
Economic data this week showed weakening in the U.S. economy, even though a bright spot on Friday was data showing construction of new homes in October rose 1.9%, as builders look to chip away at the critical shortage of new housing units.
Weekly U.S. jobless benefit claims data, regarded as the earliest warning signal of a recession, showed a rise in data released Thursday.
Continuing claims have climbed to the top end of the range from 2018 and 2019, but at the same time, they fit a seasonal pattern where the labor market appears to improve early in the year and deteriorate toward the end of it, say strategists at BCA Research.
“The implication is that it is possible that the data begins to send a more positive message about labor market conditions in early 2024, potentially signaling that the recession is not imminent,” they said.
The U.S. is scheduled to auction $16 billion of 20-year notes on Monday and $15 billion in 10-year TIPS on Tuesday ahead of the shortened holiday week for Thanksgiving.
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