US yields rise, tracking stocks, after jobless claims data
By Matt Tracy
WASHINGTON, Sept 19 (Reuters) -U.S. Treasury yields advanced on the longer end of the curve on Thursday, in line with gains in stocks, as better-than-expected jobless claims data further stoked global risk appetite, a day after the Federal Reserve announced a jumbo interest rate cut.
The yield curve, a widely-tracked indicator about the economic outlook, also rose or steepened, with the spread between the two-year and 10-year yields hitting 14 basis points (bps), the widest gap since June 2022. It was last at 13.8 bps US2US10=TWEB, compared with 6.1 bps late on Wednesday.
The curve is also described as a bear steepener, a scenario in which the rise in longer-dated yields is higher than those on the front end, which suggests that market participants are expecting a pick-up in inflation expectations at some point down the road.
While a steepening curve typically foreshadows more upcoming rate cuts, that is true in a bull steepener when short-term rates are falling faster than those on longer maturities. That is not the case on Thursday.
"The curve steepening is the most obvious trend that's been in place since the FOMC meeting," said Guy LeBas, chief fixed income strategist at Janney Capital Management, referring to the U.S. central bank's policy-setting Federal Open Market Committee.
"And an aggressive Fed - coupled with the potential for either reflationary economic growth or slight uptick in inflation expectations - are driving the curve steeper."
The benchmark U.S. 10-year Treasury yield US10YT=RR hit its highest level in about two weeks at 3.768% and was last up 4.1 bps at 3.726%. A better-than-expected U.S. jobless claims report did a lot to boost those yields, with the data showing the number of Americans filing new applications for unemployment benefits dropped to a four-month low.
The U.S. 30-year yield US30YT=RR also rose to roughly a two-week high and last traded up 5 bps at 4.057%.
On the front end of the curve, the two-year yield US2YT=RR fell 1.5 bps to 3.588%, after earlier trading higher. That yield was pressured by data showing existing home sales fell to their lowest level since 2023.
The bond market is still experiencing the impact of the Fed's decision on Wednesday to cut rates by 50 basis points, which tracked market expectations but was out of step with the majority of economists polled by Reuters who anticipated a 25-bp cut.
In a statement, the FOMC said it had gained greater confidence that inflation was under control, while Fed Chair Jerome Powell said in a press conference that the central bank would decide on the appropriate pace of future rate cuts.
After the rate cut decision, market participants are more focused on the Nov. 5 U.S. presidential election and how its outcome could determine the course of rates.
"We believe the outcome of upcoming U.S. elections will do far more to dictate the pace and ultimate magnitude of rate cuts than any potential policy mistake over a delta of 25 or 50 bps on the Fed decision," said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management.
Fed funds futures have priced in about 74 bps of cuts by the end of this year and 195 bps of cuts by September 2025.
Graphic-US yield curve https://reut.rs/4daTE9F
Reporting by Matt Tracy; Editing by Gertrude Chavez-Dreyfuss and Paul Simao
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