U.S. Treasury yields trended lower on Thursday after the Federal Reserve’s grim economic outlook published Wednesday, along with its pledge to keep interest rates low until 2022, drew inflows into government bonds.
What are Treasurys doing?
The 10-year Treasury note yield
TMUBMUSD10Y,
fell 5 basis points to 0.698%, while the 2-year note rate
TMUBMUSD02Y,
edged 0.4 basis point to 0.175%. The 30-year bond yield
TMUBMUSD30Y,
slipped 5.6 basis points to 1.464%.
What’s driving Treasurys?
On Wednesday the Fed’s updated policy statement and projections indicated that it expects a 6.5% contraction by the end of the year on a year-over-year basis, with the unemployment rate ending at 9.3%, well above the Fed’s estimate of the long-run rate forecast of 4.1%. Fed chair Jerome Powell suggested the central bank would not raise interest rates until 2022 as a result.
Meanwhile, investors worried that the number of U.S. coronavirus infections passed the two million mark and over 112,000 Americans have died, according to Johns Hopkins University. Despite fewer cases being recorded in some cities and states, the seven-day average of new cases over the last two weeks is still rising in more than 20 states, leading investors to worry about a second wave of the epidemic just as business activity is resuming.
See: Dovish Fed sees no interest-rate hikes for years, will keep buying assets
In U.S. economic data, the latest reading of weekly jobless claims are due at 8:30 a.m. ET, along with May’s producer prices data, released at the same time.
The last Treasury auction of the week will arrive Thursday afternoon. The Treasury Department will sell $19 billion of 30-year bonds. It’s unclear what the reception for the new influx of bond supply might look like as the sharp rally in long-dated debt could make them unattractive for investors.
What did market participants’ say?
“We expected a firm message from the Fed. This has been one of the most extreme times our global economy has seen. Anything short of Powell’s message yesterday would have been the bigger surprise,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities, in a note.
Source : MTV
