NEW YORK: U.S. Treasury yields edged up on Thursday after the benchmark 10-year note hit a fresh six-week low, with inflation fears continuing to dissipate as macro data and corporate announcements point to slower economic growth.
The yield on 10-year Treasury notes rose 2.3 basis points to 2.770pc after falling to 2.706pc early in the session.
Expectations were high a few weeks ago that the Federal Reserve would aggressively hike interest rates to tackle inflation, but recent data has suggested a weakening economy, said Lou Brien, market strategist at DRW Trading.
“The drift of the data lately has been on the weak side, notably those new home sales were pretty darn bad,” he said.
New home sales plunged a more-than-expected 16.6pc in April to a seasonally adjusted annual rate of 591,000 units, the Commerce Department said on Tuesday.
“The market has got a little too far over its skis, as far as how the economy was going to go and how the Fed was going to go,” Brien said.
The market has been waiting for data at the macro level to confirm slower economic growth, but micro data from corporations is providing ample evidence, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC.
“A lot of what’s happening are corporate announcements. Apple today, don’t ignore it,” Ricchiuto said.
Apple Inc plans to keep iPhone production for 2022 roughly flat at about 220 million units, Bloomberg News reported, as China’s COVID-19 curbs, global supply chain issues and cooling demand hurt smartphone makers.
“People are buying into the view that the economy is getting hit, and the economy getting hit is going to bring down inflation,” he said.
Two-year Treasury yields, which typically move in step with interest rate expectations, fell 0.6 basis point to 2.496pc, a sharp drop from a more than three-year high of 2.844pc in early May.
Minutes released on Wednesday from a Fed policy meeting three weeks ago suggested the Fed could pause hiking rates once its policy rate is back to its neutral level.
The Treasury Department sold $42 billion of seven-year notes at a high yield of 2.777pc. The auction was very strong with the high yield more than 2 basis points lower than the yield at the bidding deadline, Brien said.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 27.2 basis points.
The yield on the 30-year Treasury bond was up 3.1 basis points to 2.996pc.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.996pc.
The 10-year TIPS breakeven rate was last at 2.655pc, indicating the market sees inflation averaging about 2.6pc a year for the next decade.
The U.S. dollar five years forward inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.471pc.