The 10-year U.S. Treasury yield fell as low as 1.25% on Thursday, its lowest point since February, continuing a sharp reversal in the bond market amid growing concern about the pace of the global economic recovery.
The yield on the benchmark 10-year Treasury note was 2.8 basis points lower at 1.293% by 9:17 a.m. ET, climbing back slightly after reaching 1.25% earlier in the session. The yield on the 30-year Treasury bond dipped 3.9 basis points to 1.905%. Yields move inversely to prices and 1 basis point equals 0.01 percentage points.
“This decline in bond yields could be signaling that the inflation burst is transitory, and/or that the Delta variant will slow growth, although at 1.25% this morning that seems extreme,” Ed Hyman, founder and chairman of Evercore ISI and head of economic research, said in a note Thursday.
Thursday’s weekly jobless claims report indicated a slowdown in job growth. First-time applicants for unemployment benefits unexpectedly jumped to 373,000 in the week ending July 3. Economists were looking to see 350,000 initial claims, according to Dow Jones.
The increase in initial filings for unemployment insurance comes after June’s jobs report on Friday showed the unemployment rate rose to 5.9%, higher than expected.
The spread of the more transmissible variant of Covid-19 also fueled worries about a deceleration in global economic growth, sending investors into the safety of U.S. Treasuries.
Japan declared a state of emergency for Tokyo that could reportedly lead to spectators being banned from the upcoming Olympic Games.
The yield decline in recent weeks represents a sharp reversal from a dramatic rise that started in late 2020. After entering January below 1%, the benchmark 10-year yield rose above 1.7% in March before retrenching near the 1.6% level for much of April.
The move has mystified investors and some believe it’s largely technical factors driving the decline in yields.
“Inflation expectations have been stable, suggesting economic forces are not at the heart of the slide,” wrote Christopher Harvey, head of equity strategy at Wells Fargo in a Thursday note entitled “Misleading bond market signals.” “Rate players and our Macro team inform us that technical issues related to liquidity, positioning, and forced buying are ‘driving the bus.'”
The decline in long-term interest rates comes even as the Federal Reserve signals a possible tightening of its policy stance. Investors expect the central bank’s first move would be to slow its asset purchases while leaving its main rate at historic lows.
Short term rates have not fallen at the same pace as long-term rates, causing a so-called flattening of the Treasury yield curve.
The Federal Reserve on Wednesday released the minutes from its latest meeting on June 15-16.
Some members indicated that the economic recovery was proceeding faster than expected and was being accompanied by an outsized rise in inflation, both making the case for taking the Fed’s foot off the policy pedal.
However, the prevailing mindset was that there should be no rush and markets must be well prepared for any shifts.
Auctions will be held on Thursday for $40 billion of 4-week bills and $40 billion of 8-week bills.
— CNBC’s Pippa Stevens and Jeff Cox contributed to this market report.
