Yield curve flattens slightly

US 30-year Treasury yields dipped slightly while other maturities were little changed on Thursday on nervousness ahead of Friday's US non-farm payrolls report for June and its potential short-term impact on Federal Reserve rate hike expectations. US 30-year Treasuries were last up 10/32 in price to yield 2.138 percent, while benchmark 10-year Treasuries were last unchanged in price to yield 1.385 percent. The trend of lower 30-year yields and higher or unchanged short- and medium-dated yields is known as a "curve flattener."
Analysts said 30-year Treasuries were still attractive to overseas buyers for their yields, which are higher compared to those of other countries. Also, the government's monthly US employment data could whipsaw short- and medium-dated Treasuries, which are more vulnerable to expectations about the timing of Federal Reserve rate increases. Despite the modest curve flattener trade, 30-year yields were not far from Wednesday's record low of 2.098 percent, while 10-year yields also hovered near Wednesday's record low of 1.321 percent.
Analysts said that, although global growth concerns stemming from Britain's June 23 vote to exit the European Union would likely keep the Fed on hold from hiking rates this year or potentially even next, Friday's jobs data could still jolt short- and medium-dated yields. "The Fed's policy stance is biased to tighten, and it's just the uncertainty over when and by how much, so that is keeping the curve in this flattening bias," said John Herrmann, director of interest rate strategy at Mitsubishi UFJ Securities USA Inc in New York.
Economists polled by Reuters expect US employers to have added 175,000 jobs last month after a meagre 38,000 in May. Yields rose across the board earlier Thursday after the ADP National Employment Report showed private employers hired 172,000 workers in June, beating market expectations for a 159,000 gain. Separately, Labour Department data showed initial claims for state unemployment benefits declined, leaving them close to a 43-year low touched in mid-April.
Long-dated yields dipped lower and others stabilised later in the session, however, on uncertainty ahead of Friday's data. "People are probably going to stay put until they get tomorrow's employment number," said Subadra Rajappa, head of US rates strategy at SG Corporate & Investment Banking in New York. Rajappa said 10- and 30-year yields could hit fresh record lows if the jobs data is weak. US two-year notes were last little changed in price to yield 0.593 percent.