TREASURIES-Yields rebound from six-week lows as unemployment claims fall

BY Reuters | ECONOMIC | 05/16/24 10:10 AM EDT

By Karen Brettell

May 16 (Reuters) - U.S. Treasury yields rebounded from almost six-week lows on Thursday after data showed jobless claims fell in the latest week, after cooling consumer price inflation data for April on Wednesday boosted demand for the U.S. debt.

Benchmark 10-year yields were also supported after they fell to the 200-day moving average.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell 10,000 to a seasonally adjusted 222,000 in the latest week, indicating a still-strong labor market.

That "is not a real number to be overly concerned about. I think it's just a little bit of a dose of reality that things are still moving along and the Fed is on hold for now, and they claim they are going to be on hold for a while," said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee.

Bonds rallied earlier on Thursday and yields hit their lowest levels since April 5 as traders boosted bets that the Federal Reserve will cut rates two times this year, with the first cut likely in September.

That followed data on Wednesday showing the consumer price index rose 0.3% last month after advancing 0.4% in March and February. The core CPI rose 0.3% in April after advancing 0.4% for three straight months. "Yesterday's news was good in the sense that it wasn't hotter than expected," said Phifer.

Traders are closely watching inflation releases for signs that price pressures are moving back closer to the Fed's 2% annual target, after stronger-than-expected price gains in the first quarter raised doubts that the U.S. central bank will be able to cut rates in the coming months.

Analysts say that while Wednesday's data will give the Fed some confidence inflation is improving, they will need to see further easing in price pressures before cutting rates.

Benchmark 10-year yields were last up 1 basis point at 4.369%, after earlier falling to 4.313%, the lowest since April 5. They are now trading back above the 200-day moving average of 4.331%, after briefly trading below it.

Two-year yields rose 5 basis points to 4.783%, after earlier reaching 4.705%, also the lowest since April 5.

The inversion in the yield curve between two-year and 10-year notes widened 4 basis points on the day to minus 42 basis points. (Reporting By Karen Brettell; additional reporting by Terence Gabriel; editing by Jonathan Oatis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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