US Treasury yields rise after positive employment data

Yields, which rise when bond prices fall, soared after Labor Department data showed the number of jobless claims fell sharply last week, signaling that the labor market may stabilize after layoffs increased slightly earlier in the winter.

Investors tend to sell Treasuries when they expect faster growth and inflation, which lowers the value of fixed payments on bonds and can eventually lead the Federal Reserve to raise interest rates. short term.

Yields climbed later in the session after an auction of $ 62 billion of seven-year Treasuries that analysts said showed extremely low investor interest.

“The middle area of ​​the curve has had a really hard sell off over the past 2 days and auction results suggest no one has the stomach to try and intervene to reverse the trend,” Jefferies analysts wrote. in a note after the auction.

Thursday’s decision extends a recent rise in government bond yields that has started to capture the attention of investors in a range of asset classes. The yield on the 10-year note, a proxy for borrowing costs on everything from mortgages to business loans, has jumped to nearly 1.5%, from around 1% in a matter of weeks, thanks to expectations growing reports that vaccines and government stimulus efforts will accelerate. growth and inflation.

While Federal Reserve officials have said that rising yields to pre-pandemic levels mark a return to normal and not pose a problem, some investors fear that a pickup in inflation could force the central bank to raise interest rates faster than expected, said Gennadiy Goldberg. US rates strategist at TD Securities.

“Right now it seems like no one really wants to buy the dip,” he said.

Fed Chairman Jerome Powell told lawmakers this week that while the economy has recovered from the depths of the downturn, the central bank intends to maintain its easy money policies until “Further substantial progress has been made” towards its employment and inflation targets. The central bank lowered interest rates to near zero and pledged to buy billions of dollars in bonds to lower the costs of borrowing in the United States and help the recovery.

Comments from Fed officials that they are not worried about rising yields only added to the selling pressure in the bond market, analysts said. For much of last year, investors expressed confidence that the Fed – in order to prop up the economy – would keep yields from rising much more than 1% by increasing the amount of longer-term Treasuries. that they buy every month. But that confidence has since evaporated, removing a major obstacle to higher yields.

Investors are “pouting about this,” said Jim Vogel, interest rate strategist at FHN Financial, referring to the Fed’s lack of interest in buying more Treasuries over the longer term.

If yields continue to rise, it could put pressure on equities and increase borrowing costs for businesses and consumers, which some believe could increase volatility.

“As rates go up, many products that have used T-bills as a benchmark also tend to rise, creating natural hedging needs for investors,” Goldberg said.

Write to Sebastian Pellejero at [email protected] and Sam Goldfarb at [email protected]