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

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

Data on Thursday showed US producer prices increased by the most in five months in March, although underlying wholesale inflation was tame. On the other hand, US 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, but not a lot," 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 that index currently shows inflation of 1.6 percent to 1.7 percent.

"We're a long way away from that level so we don't expect the Fed do anything much from here," Shipley said.

Following release of Thursday's data, analysts at Action Economics said the Fed funds futures have declined, with Treasuries selling off and 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 mid-morning trading, US 10-year note yields rose to 2.498%, up from 2.477% late on Wednesday.

Yields on US 30-year bonds were also higher, at 2.920% , up from 2.904% on Wednesday.

On the short end of the curve, US 2-year yields edged up to 2.354%, 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.

Their comments, however, had little impact on the Treasury market.

Investors are now looking to the Treasury's auction of $16 billion in US 30-year bonds, with market participants expecting demand to be a little higher than average.

Copyright Reuters, 2019
 

 

 

 

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