Bond Yields Are Near Highs After A Drop In Jobless Claims

On Friday morning, Treasury yields remained stable to slightly lower, reflecting the impact of U.K. retail sales data, which reinforced the notion that consumers in both the U.S. and the U.K. are holding up well amid easing inflation.

‍

Here are the specific yield movements:

• The yield on the 2-year Treasury remained unchanged at 4.837%, maintaining the same level as the previous day's 3 p.m. Eastern time data.
• The yield on the 10-year Treasury slipped 3.5 basis points to 3.818% from its previous level of 3.853% on Thursday afternoon.
• The yield on the 30-year Treasury also fell 3.5 basis points to 3.875% from 3.910% late Thursday.

‍

The market's response to the data was relatively muted, with yields showing little change or a slight decline. The U.K. retail sales report, indicating higher-than-expected growth in June alongside easing inflation, drew parallels to the U.S., where consumers continue to display strength amid diminishing price pressures.

‍

As of Friday, there were no major U.S. economic data releases scheduled, as investors prepared for the upcoming Federal Reserve policy announcement on Wednesday. Traders are almost certain, with a probability close to 100%, that the central bank will implement another quarter-point rate increase, raising the main interest-rate target to 5.25%-5.5%. Additionally, the CME FedWatch Tool indicates a 28.3% likelihood of a similar-size rate adjustment by November.

‍

Thursday's data on U.S. jobless benefit claims revealed a higher-than-expected decrease to 228,000 for the week ending on July 15. This data reinforced the belief among some analysts that the labor market remains robust, making it challenging to substantially reduce inflation and maintain a consistent and sustainable path toward the 2% target.

‍

Daniel Vernazza, the Chief International Economist at UniCredit Bank in London, anticipates the Fed to raise the federal funds rate by 25 basis points in the upcoming meeting. He notes that most Fed officials have expressed expectations of further tightening this year, making it unlikely for them to skip a rate hike for two consecutive meetings. However, Vernazza suggests that the Fed's post-meeting statement will likely leave the possibility of further tightening open, depending on incoming economic data. In his view, the rate hike in July is likely to be the last one.

‍