Yields tick up after lower-than-expected unemployment data

July 20 (Reuters) – US Treasury yields rose on Thursday following new unemployment and manufacturing data that both came in below forecasts, as investors bet on whether the Federal Reserve is nearing the end of its interest rate-hiking cycle.

In a sign of continued labor market strength amid high interest rates, initial jobless claims totaled 228,000 for the week ending July 15, a decline from the previous week and their lowest since mid-May.

Meanwhile, the Federal Reserve Bank of Philadelphia’s Manufacturing Survey showed continued declines in the area’s manufacturing sector, a further sign of its softening.

Further data came on Thursday from the National Association of Realtors, which showed existing home sales dropped 3.3% in June while median existing home sales prices rose to about USD 410,000, the second-highest ever recorded.

Benchmark 10-year Treasury yields spiked following the news and were last at 3.846%, a 10.4 basis point increase from Wednesday’s close.

Interest rate sensitive two-year Treasury yields, meanwhile, also rose on the data. They were last at 4.825%, a 7.1 basis point increase from Wednesday’s close.

The inversion in the yield curve between two-year and 10-year notes at one point widened to as much as minus 105.1 basis points. It most recently sat at minus 98.2 basis points.

The inversion, a key indicator of market sentiments for a recession, has some market participants concerned.

“We really haven’t been in a situation like this with such a severely inverted yield curve since the 1980s,” said Blair Shwedo, head of investment grade trading at US Bank.

“So my concern is just that this [monetary tightening] is going to have a larger impact on the economy than we appreciate at this point.”

While the Fed is widely expected to hike rates a further 25 basis point hikes at its July 25-26 meeting next week, market participants have been mixed as to where it will go in the ensuing months.

“There’s not a lot of certainty on the part of investors about where the data is going next – it’s been a lot of mixed signals,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

“This just shows you how hypersensitive markets are to any indications,” he added.

Also on Thursday, the Treasury Department auctioned USD 17 billion in Treasury inflation-protected securities at 99.02 cents on the dollar.

July 20 Thursday 3:28 PM New York / 1928 GMT

(Reporting by Matt Tracy; Editing by Emma Rumney and Marguerita Choy)