Treasuries See Further Upside As Data Adds To Interest Rate Optimism

(RTTNews) - After moving sharply higher over the two previous sessions, treasuries saw some further upside during trading on Thursday.

Bond prices saw modest strength in morning trading and climbed more firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell 5.7 basis points to 4.238 percent.

The ten-year yield moved lower for the third consecutive session, slumping to its lowest closing level in well over two months.

The continued strength among treasuries came as the latest U.S. economic data added to optimism about the outlook for interest rates.

Following yesterday's tamer-than-expected consumer price inflation data, the Labor Department released a report this morning unexpectedly showing a modest decrease by producer prices in the month of May.

The report said the producer price index for final demand dipped by 0.2 percent in May after climbing by 0.5 percent in April. Economists had expected producer prices to inch up by 0.1 percent.

The report also said the annual rate of producer price growth slowed to 2.2 percent in May from an upwardly revised 2.3 percent in April.

Economists had expected the annual rate of producer price growth to accelerate to 2.5 percent from the 2.2 percent originally reported for the previous month.

The Labor Department also released a separate report showing an unexpected increase by first-time claims for U.S. unemployment benefits in the week ended June 8th.

The report said initial jobless claims climbed to 242,000, an increase of 13,000 from the previous week's unrevised level of 229,000. Economists had expected jobless claims to edge down to 225,000.

With the unexpected increase, jobless claims reached their highest level since hitting 248,000 in the week ended August 12, 2023.

"The latest data in hand nudge the door a little wider open for the Fed to begin making an interest rate cut later this year," said Bill Adams, Chief Economist for Comerica Bank. "Comerica forecasts for the Fed to make its first cut of this cycle in September, followed by a second cut in December."

The data has generated some hopes Fed officials were being overly conservative when they forecast just one rate cut this year.

Treasuries saw further upside in afternoon trading as the Treasury Department revealed this month's auction of $22 billion worth of thirty-year bonds attracted above average demand.

The thirty-year bond auction drew a high yield of 4.403 percent and a bid-to-cover ratio of 2.49, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.39.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Trading on Friday may be impacted by reaction to the University of Michigan's preliminary report on consumer sentiment in the month of June, which includes readings on inflation expectations.