ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


Treasury yields were flat on Thursday, as the momentum of this week’s selloff was offset by a string of disappointing economic reports, including jobless claims (, new-home sales ( manufacturing data (

The trio of weaker-than-expected reports underscored a theme of sluggish growth as the market braces for next week’s Federal Reserve meeting.

Since the Fed has signaled a data-dependent approach to a potential interest-rate hike, investors focus on economic reports as a way to predict the central bank’s next moves, especially since Fed officials are in a “blackout” period with no public comments ahead of next week’s meeting.

“Short to intermediate bonds should hold their value [and] the dollar will have a hard time staging any material rally off the back of these weaker numbers, as the case for any Fed tightening continues to weaken,” said Jonathan Lewis, chief investment officer at Samson Capital Advisors.

After changing direction a few times, on balance the yield on the 10-year Treasury note fell 0.4 basis point to 1.968%, according to data from Tradeweb. The yield on the two-year note declined 0.8 basis point to 0.541% and the 30-year bond yield increased 0.1 basis point to 2.655%. Treasury prices move in the opposite direction of yields.

Thursday’s choppy action came after a sharp selloff in U.S. and eurozone bond markets on Wednesday, which led Treasury yields to record the largest three-day gain in two months (

Identifying a single trigger for the selloff was a challenging exercise for investors, as fundamental news wasn’t particularly bond-unfriendly on Wednesday.

“Market chatter seemed to focus on a cross-currency allocation trade that involved hedging UK Gilts by shorting Treasurys after the pound rallied versus the dollar on Wednesday morning,” Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said in a note.

“We’ve heard chatter about a hawkish read of the Bank of England Minutes overnight as contributing to a selloff in the UK, as well as jitters about the pace of the European Central Bank’s QE buying,” Ian Lyngen, senior rates strategist at CRT Capital Group, said in a note.

Even as Treasury yields are approaching the 2% threshold, the market is likely to remain in a trading range affected by the gravitational pulls of negative rates in Europe, Lewis noted.

Negative-yielding eurozone government debt is currently at 2.8 trillion euros ($3.02 trillion), according to a Bank of America Merrill Lynch report dated April 22.

“Compared to an investment-grade credit market that is just EUR1.5 trillion ($1.62 trillion) in size and a high-yield market that is EUR320 billion, the [bullish] theme until September 2016 is the chronic shortage of yield,” Barnaby Martin, credit strategist for BAML wrote in the report.

In this context, it is hard to anticipate a sustained selloff in the Treasury market, when Treasury yields are so attractive compared with eurozone’s debt, Lewis concluded.