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Bond Report: Treasury yields tilt lower as bond market remains unmoved by U.S. economic data

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U.S. Treasury yields edged lower on Wednesday as investors shrugged off additional evidence of the economic recovery, underlining the bond market’s recent resilience to reflation fears.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.575%

was down 0.7 basis point to 1.584%, falling for a fourth straight session. The 2-year note
TMUBMUSD02Y,
0.152%

was steady at 0.157%, while the 30-year bond yield
TMUBMUSD30Y,
2.246%

fell 0.6 basis point to 2.258%.

What’s driving Treasurys?

Government bonds showed little reaction, and rallied slightly after a wave of weaker-than-expected but still impressive economic data on Wednesday.

Automatic Data Processing Inc. reported the private sector had gained 742,000 jobs in April, below forecasts for 800,000 according to Dow Jones data.

Analysts said that was still in line with hopes that the government’s nonfarm payrolls data due on Friday could see about a million new jobs created for the month which might prompt the Federal Reserve towards a discussion of tapering its asset purchases.

In other U.S. data, a services sector activity indicator for April from the Institute for Supply Management came in 62.7% last month from a record 63.7% in March. Any number above 50% represents an expansion in activity.

Investors will keep their eye on any further Fed commentary after Treasury Secretary Janet Yellen raised the possibility of interest-rate increases if the economy overheated, in relation to President Joe Biden’s plans for further fiscal spending.

Boston Fed President Eric Rosengren in an interview with MarketWatch on Wednesday said the bump in inflation this year would likely be transitory.

What did market participants say?

“10-year yields spent the bulk of the session moving lower as strong reads on private-sector hiring and corporate outlooks are arguably incorporated in current valuations. Add to this the proximity to Friday’s payrolls data and we anticipate Thursday will be defined by an extension of the week’s trend,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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