10-year Treasury yield stalls below 1.5pc after Biden infrastructure deal

NEW YORK: Weaker than anticipated readings on jobless claims and durable good orders kept Treasury yields in a tight range Thursday as investors saw little reason for the Federal Reserve to deviate from its plans to raise interest rates in 2023.

President Joe Biden's midday announcement that a bipartisan group of Senators had reached a deal to pass an infrastructure bill had little effect on the bond market.

The bill will likely be neutral for interest rates, but could lead to a push for a broader bill later this year that could push rates higher, said Jim Vogel, fixed income strategist at FHN Financial Capital Markets.

"Does a bipartisan agreement on this issue spur a partisan push for a second, larger bill focused on social infrastructure? Then, it could push rates higher for fear it will be debt financed to make up in the shortfall in collecting revenues that are estimated to cover the cost of trillions in additional spending in the next decade," he noted.

Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 411,000 for the week ended June 19, the Labor Department said on Thursday.

Economists polled by Reuters had forecast 380,000 applications for the latest week.

The preliminary May reading of Durable Goods Orders rose 2.3pc, below Wall Street expectations of 2.8pc.

The weaker than expected data gives the Federal Reserve little reason to move faster than anticipated in order to combat high inflation, analysts said.

"The labor market remains lumpy and uneven, so the only real takeaway is that removing fiscal and monetary support too early is the biggest risk to the recovery," said Jamie Cox, managing partner for Harris Financial Group.

"Although this doesn't solidify any transitory argument, it does anchor markets to pay more attention to the labor market for cues on the future path of rates."

The Fed's more hawkish stance at last week's meeting surprised some market participants, leaving investors struggling to interpret signals from the central bank about how hot it is willing to let inflation run before it begins unwinding pandemic-era monetary stimulus.

Benchmark 10-year Treasury yields touched 1.504pc overnight but hovered around 1.4919pc after Biden's announcement.

Yields of short term 2-year Treasuries edged higher at 0.2661, while long duration 30-year Treasury yields dipped to 2.1008pc.

The yield curve - a measure of future economic expectations - was largely unchanged. The spread between 2-year and 10-year yields rose to 122.60 basis points from 122.30 from the day before.

Investors are looking ahead to the Fed's annual symposium in Jackson Hole, Wyoming later in August. Until then, benchmark 10-year Treasuries will likely stay in a range between 1.40pc to 1.60pc, said Tom di Galoma, managing director at Seaport Global.

The Treasury auctioned $62 billion in 7-year notes at 1.264pc, higher than the six auction average of 1.084pc.

The Fed's reverse repurchase window took in $813 billion in cash from 75 counterparties, just below Wednesday's record $813.6 billion, in a sign that investors see few attractive options available in a low-yield environment.