Bond Report: 10-year Treasury yield jumps to almost 3.5% ahead of producer-price index report


U.S. bond yields rose on Thursday, with the 10-year rate jumping to almost 3.5%, as investors turned their attention to Friday’s producer-price index for November.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 4.316% advanced 5.6 basis points to 4.312% from 4.256% on Wednesday.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 3.484% rose 8.5 basis points to 3.492% from 3.407% as of late Wednesday.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 3.437% climbed 4 basis points to 3.454% from 3.414% Wednesday afternoon.
What’s driving markets

Some analysts attributed Thursday’s rise in yields to profit-taking by bondholders ahead of Friday’s producer-price index report for November.

Read: Treasuries Yields Are Rising Thursday. Bondholders Are Taking Profits.

With a relative dearth of major U.S. macroeconomic information on Thursday, investors continued to contemplate the prospect of a still too-strong U.S. economy and whether a soft landing is “anywhere near achievable,” according to Stephen Innes, managing partner at SPI Asset Management.

The Treasury yield curve remained deeply inverted, with the spread between 2- and 10-year rates shrinking to minus 82 basis points, as traders factored in a slightly greater chance that the fed-funds rate target could get to 5% and higher by March. Fed-funds futures traders now see a 40.7% likelihood of such a scenario, up from 37.4% on Wednesday, after factoring in a better-than-not chance of a half-percentage point rate hike on Dec. 14, according to the CME FedWatch Tool.

Data released on Thursday showed that U.S. weekly initial jobless benefit claims rose slightly to 230,000 in early December, pointing to what could be a slow erosion in the labor market as the U.S. economy weakens.

What analysts are saying

Ahead of next week’s Federal Open Market Committee meeting, “the market is increasingly sensitive to every data point” and “tomorrow’s PPI report is a potential game changer,” said Stifel, Nicolaus & Co. Chief Economist Lindsey Piegza. The report “could undermine the Fed’s plans for a pivot to a less aggressive policy” if producer price pressures fail to retreat.



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