NEW YORK: Treasury yields rose to three-month highs on Thursday after U.S. data solidified the picture of an economy and job market defying predictions of recession a day after the U.S. central bank chief reiterated that there is little room yet to let up on monetary tightening.
Weekly claims for unemployment insurance came in at 239,000, below the 265,000 expected and last week's revised 265,000 jobless claims filed.
At the same time, the final print for first-quarter Gross Domestic Product growth was 2.0%, higher than last month's 1.3% reading and the 1.4% forecast by economist's polled by Reuters.
The yield on 10-year Treasury notes was up 14.2 basis points to 3.854%. It hit the highest since March 10 and at the 3.868% high it looked on track for the biggest points gain since September.
One-month Treasury yields fall to Oct. lows as debt ceiling worries grow
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations hit 4.893%, the highest since March 9, and was last up 16 basis points at 4.882%, on track for the biggest jump since late March.
That pushed the closely watched U.S. Treasury yield curve spread between yields on two- and 10-year Treasury notes, which is seen as an indicator of economic expectations, toward the inversion maximum hit in March during the regional banking crisis. It was last at -103 basis points.
Thursday's releases were nevertheless a warm-up for Friday's Personal Consumption Expenditures price index for May, the main data attraction of the week because of its importance to Fed decision-makers as an inflation gauge.
"What's interesting to me is how much the market is willing to move on, particularly, stale data. Yes, we know the economy was quite strong early in the year, much stronger than expected, but I will be more keen to see the PCE tomorrow," said Gennadiy Goldberg, senior rates strategist at TD Securities in New York.
Goldberg said next week's June ISM Purchasing Managers Indexes and nonfarm payrolls would also be big drivers for bonds.
The yield on the 30-year Treasury bond was up 11.3 basis points to 3.917%.
On Wednesday, at a central banker panel in Portugal, Federal Reserve Chair Jerome Powell kept consecutive U.S. interest rate hikes on the table while European Central Bank President Christine Lagarde cemented expectations for a ninth straight rise in euro zone rates in July.
Powell said there is significant disinflation in the pipeline but monetary policy may not be restrictive enough to tame inflation. He also said there is a significant probability that "we get a downturn, but it's not the most likely case."
Powell reiterated on Thursday in remarks from Madrid that he expects the moderate pace of interest rate decisions to continue in the coming months.
Meanwhile, money market traders see an 83% chance of another 25 basis point hike in July, after the Fed left rates at 5-5.25% at its June meeting, interrupting the consecutive increases that hoisted the benchmark rate from zero since last March.
The market is building in greater odds but not yet a probability of yet one more hike after that this year.
"The Fed won’t rule out hiking at consecutive meetings. The last point technically falls into recent Fedspeak emphasizing a meeting-by-meeting approach, but is a more aggressive undertone than Powell’s insistence the Fed could be patient in judging the impacts of monetary policy" said Will Compernolle, macro strategist at FHN Financial in New York in a client note on Thursday.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.181%.
The 10-year TIPS breakeven rate was last at 2.209%, indicating the market sees inflation averaging 2.21% a year for the next decade.