US yields rise after data as Fed rate path assessed

NEW YORK – US Treasury yields advanced on Thursday after a gauge of the labor market was stronger than anticipated, as investors continued to evaluate the path of monetary policy following the Federal Reserve’s statement in the prior session.

The Labor Department said weekly initial jobless claims decreased 33,000 to a seasonally adjusted 231,000, below the 240,000 estimate of economists polled by Reuters and reversing a surge in the prior week, which was partially attributed to a climb in fraudulent claims in Texas.

A separate report showed a gauge of factory output in the mid-Atlantic region rebounded to 23.2 in September, well above the 2.5 estimate and the prior negative 0.3 reading, while a measure of prices paid eased.

The data comes after the Fed cut interest rates by 25 basis points on Wednesday and signaled more cuts were on the horizon in an effort to stem any weakness in the labor market.

Yields had been steadily falling in recent weeks in anticipation of the rate cut by the central bank, and the 10-year note touched a 7-month low of 3.994% last week after some economic data indicated the labor market may be faltering.

“The two-year yields are very efficiently priced for a pretty aggressive policy path, like six cuts by the end of next year, and 10-year yields are close to the bottom end of the range at 4%,” said Subadra Rajappa, head of US rates strategy at Societe Generale in New York.

“In this sort of environment where the economy and the data have been kind of surprising to the upside … in this context, you should expect a bounce back from the lows.”

But other data in the form of the Conference Board’s leading indicator, a gauge of future economic activity, fell 0.5% in August after climbing 0.1% in July, indicating trade policy remained an economic headwind, as the Conference Board cited “higher tariffs” for the slowdown.

The yield on the benchmark US 10-year Treasury note rose 3.2 basis points to 4.108% and was on track for its first sessions of consecutive gains since the start of September and biggest two-session jump in a month.

The yield on the 30-year bond gained 5 basis points to 4.724%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 53.4 basis points.

Markets are currently pricing in a 94.1% chance for a cut of at least 25 basis points at the Fed’s October meeting and nearly 50 basis points in cuts by the end of the year, according to LSEG data.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, climbed 2.5 basis points to 3.572%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.46% after closing at 2.469% on Wednesday, its highest since September 3.

The 10-year TIPS breakeven rate was last at 2.383%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Daniel Wallis)