Treasury yields tick lower ahead of economic data

Treasury yields pulled back slightly early Thursday trading ahead of data that will give the latest read on the labor and housing market’s health.

The 10-year Treasury note yield TMUBMUSD10Y, +0.82% was down 0.9 basis point to 3.074%, but still near its seven-year high at 3.109%. The 2-year note yield TMUBMUSD02Y, +0.46% was mostly flat at 2.808%, hovering at a decadelong peak, while the 30-year bond yield TMUBMUSD30Y, +0.75% receded by 1.7 basis points to 3.220%, still near its highest levels since May 17. Bond prices move in the opposite direction of yields.

Investors will gear up for a raft of economic data.

Initial jobless claims and the Philadelphia Federal Index, a gauge of regional economic health, will come out at 8:30 a.m. Eastern. Jobless claims are projected to hit 208,000 for the week ending September 15. Existing home sales for August will be released at 10 a.m. Eastern, with economists polled by MarketWatch expecting an annualized pace of 5.37 million.

Treasury yields have made a rapid run-up in recent weeks thanks in part to rate-hike expectations. Analysts suggested investors were beginning to fall in line with the Federal Reserve’s expectations of two rate increases this year, and two more hikes this year. Recent speeches by senior central bankers including Fed Gov. Lael Brainard have prompted many investors to even entertain the possibility that the central bank may raise rates beyond the neutral level, passing the threshold where monetary policy starts to restrict economic activity.

Some had doubts the central bank would push its benchmark interest rate higher as the yield curve has approached closer to inversion, usually a prelude to a recession. But analysts said solid economic growth and modest inflationary pressures will keep the Fed raising rates at its gradual pace of one hike every three months.

“We do not think the rise in U.S. 10-year Treasury yields has too much further to run. Our end of year forecast is 3.1%. First, our scenario for the path of Fed policy rates is now not far off being priced in. Second, over the last two cycles, the 10-year Treasury yield has peaked close to the eventual peak in the fed-funds rate. Third, we expect inflation to remain well-behaved,” wrote analysts at ABN AMRO.

President Donald Trump is set to nominate Nellie Liang to take the remaining spot at the Fed’s Board of Governors. During her tenure as the director of the Fed’s Office of Financial Stability Policy and Research, Liang has played a prominent role in the central bank’s efforts to strengthen the banking sector after the financial crisis.

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