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Bond Report: 10-year, 30-year Treasury yields slip even after jobless claims fall to pandemic low, ADP shows 978,000 private-sector jobs gain

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Long-dated U.S. government bond yields slipped Thursday morning, after initially climbing, following a private-sector report that showed a sizable gain in employment in May and weekly jobless claims hit a new pandemic-era low.

The reports come ahead of the monthly May employment reading due on Friday, which will be more closely tracked by debt investors.

How Treasurys are trading
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.596%

    was yielding 1.594%, compared with 1.591% from Wednesday’s level at 3 p.m. Eastern.
  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    2.281%

    was at 2.278%, compared with 2.280%.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.148%

    was yielding 0.149%, up 0.2 basis point.

On Wednesday, the 10-year yield saw its biggest drop since May 25.

Fixed-income drivers

Thursday’s main attraction for fixed-income was the weekly report on U.S. jobless benefit claims and a monthly private-sector reading of the state of the labor market.

Private-sector employment surged by 978,000 in May, according to Automatic Data Processing Inc.’s National Economic Report, well above forecasts from economists surveyed by the Wall Street Journal and Econoday, which forecast a gain of 680,000 jobs and 627,000, respectively.

Separately, initial jobless claims dropped by 20,000 to 385,000 in the week ended May 29, the government said Thursday, marking the fifth decline in a row and a fresh low in the era of COVID. Economists surveyed by Dow Jones and The Wall Street Journal had forecast new claims would slip to a seasonally adjusted 393,000.

The employment reports serve as an appetizer to Friday’s U.S. Labor Department May jobs report, which is viewed as a potential catalyst for markets that have been range bound for weeks, as investors watch for further evidence that the U.S. economy is overheating in the rebound from the COVID pandemic.

In addition to jobs data, surveys of service sector purchasing managers are scheduled to be released starting at 9:45 a.m. from IHS Markit and the Institute for Supply Management at 10 a.m.

U.S. Treasury yields pulled back on Wednesday after the Fed’s Beige Book indicated that the economy expanded overall at a “moderate pace.”

Separately, on Wednesday, the Fed announced that it would soon begin selling assets that it accumulated in its Secondary Market Corporate Credit Facility, or SMCCF, where it held $5.21 billion of corporate bonds and exchange-traded funds from companies including Whirlpool Corp., Walmart Inc. and Visa Inc.

In Fed speakers, Dallas Fed President Rob Kaplan is expected to speak at an event at Rice University at 1 p.m. Thursday, Philadelphia Fed President Patrick Harker will deliver a speech on building an equitable workforce at 1:50 p.m. and Fed Vice Chair for Supervision Randal Quarles will speak at a conference hosted by the Securities Industry and Financial Markets Association at 3:05 p.m.

What strategists and traders are saying

“Add a new suspense item to tomorrow’s payroll report. How much will trading volume rise in response to any number or surprise?” queried Jim Vogel, executive v.p. at FHN Financial in a Thursday note.  

“[Treasury] flows are near year-end holiday proportions because investors are waiting for the right combination of data and new developments before committing additional capital to bonds or returning to speculative trading. Economists know what they want to see in June and July, but the bond market only knows it hasn’t seen enough yet of whatever clues it is waiting for. Traders’ six-month zeal to run prices ahead of facts died much sooner than we anticipated even though we did expect a second quarter trading pause,” he wrote. 

He said that “May payroll numbers…will inform recovery headlines but not answer critical questions about consumption trends into the fourth quarter.”

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