Yields advance after US data tempers slowdown concerns

NEW YORK: US Treasury yields rose on Thursday after generally solid  data on U.S. jobless claims and producer prices that may have eased worries about a steep downturn for the U.S. economy.

The reports did not, however, sway expectations that the Federal Reserve will hold interest rates steady throughout the year, analysts said.

U.S. yields further edged higher after a softer-than-expected 30-year bond auction. The bond picked up a yield higher than that expected at the bid deadline, suggesting weak demand.

"PPI (producer price index) sparked early selling across the curve that started as a flattener then shifted to parallel rate increases as the 30-year auction came into view," said Jim Vogel, interest rates strategist, at FTN Financial in Memphis.

Data on Thursday showed U.S. producer prices increased by the most in five months in March, although underlying wholesale inflation was tame. On the other hand, U.S. initial jobless claims dropped to a 49-1/2-year low last week, pointing to sustained labor market strength.

"The reality is that inflation is stable and drifting down a little bit," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "Until you get the core PCE deflator well above 2.25 percent, or closer to 2.5 percent, the Fed will more or less going to be on hold here."

The core PCE (personal consumption expenditure) index is one of the inflation measures that the Fed looks most closely at and Shipley said the index currently shows inflation of 1.6 percent to 1.7 percent.

Following the release of Thursday's data, analysts at Action Economics said fed funds futures have declined, with the market re-thinking the potential for rate cuts next year.

"The market is now suggesting the Fed is on hold this year, as seen in the March FOMC minutes ... and is less than fully priced for a rate cut by Q1 2020," said Action Economics.

In afternoon trading, U.S. 10-year note yields rose to 2.502%, up from 2.477% late on Wednesday.

Yields on U.S. 30-year bonds were also higher, at 2.935% , up from 2.904% on Wednesday.

On the short end of the curve, U.S. 2-year yields edged up to 2.352%, compared with Wednesday's 2.327%.

Fed Vice Chairman Richard Clarida, New York Fed President John Williams, and St. Louis Fed President James Bullard all spoke on Thursday, and seemed to be preparing the market for a potential economic slowdown.

Also on Thursday, the Treasury auctioned $16-billion in 30-year bonds, with a yield of 2.930 percent, higher than the level at the bid deadline. The bid-to-cover ratio was 2.25, a little lower than the 2.3 average.