Treasury yields tick lower as investors shift focus to jobs report

Treasurys edged higher Thursday, pushing yields down marginally, a day ahead of a November employment report investors will be watching for clues to the pace of potential Federal Reserve interest-rate rises in 2018.

What are yields doing?

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.23%  ticked half a basis point lower to 2.325%, from 2.330% on late Wednesday, while the yield on the 2-year note TMUBMUSD02Y, +0.90%  declined 1.6 basis point to 1.790%, from 1.806%. The yield on the 30-year Treasury bond TMUBMUSD30Y, +0.32% also known as the long bond, fell 0.7 basis point to 2.712%, versus 2.719%.

Yields and debt prices move in opposite directions.

What are investors watching?

The Labor Department reported the number of Americans applying for first-time unemployment benefits, fell by 2,000 to 236,000 in the week ending Dec. 2. Analysts surveyed by MarketWatch had expected the number of claims to come in at 240,000, up slightly from 238,000 the previous week.

The main data event of the week comes Friday morning. Economists surveyed by MarketWatch expect data to show the U.S. economy added 200,000 jobs in November after a 261,000 rise in nonfarm payrolls in October. The unemployment rate is forecast to remain at 4.1%.

But investors expecting volatility in response to the data may be disappointed. Analysts at J.P. Morgan said bond traders have shifted their attention to inflation readings at the expense of labor market data. After the unemployment rate fell to unforeseen lows this year and inflation shrugged off the tightening labor market, the traditional relationship between low unemployment and rising inflation has come under scrutiny.

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Investors also continue to keep tabs on the progress of tax legislation.

What are analysts saying?

Bond investors are trying to work out whether corporate tax cuts, if passed, will influence the pace of monetary tightening by the Federal Reserve, economic growth, the budget deficit, trade deficit and more, said Steven Barrow, currency and fixed-income strategist at Standard Bank, in a note.

Standard Bank’s bias is for longer-term yields to trend higher, but Barrow sees scope for an overdue return to volatility.

“For while the U.S. macroeconomic situation seems to be more conducive to higher long-term yields, as the economy improves, spare capacity is used, the Fed tightens and price pressure slowly builds, the argument that overvalued asset prices, like stocks, could slump and produce much lower Treasury yields also seems to be rising all the time,” Barrow said.

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