Ahead of Friday's US employment report Treasury yields were lower, propelled by the European Central Bank's decision to delay its first post-crisis interest-rate hike until 2020 and offered banks a fresh round of loans to prevent a credit crunch that could worsen the European Union's economic slowdown. The central bank had previously said rates would remain at their record low levels through the summer, but it now expects them to stay there "at least through the end of 2019."
Weaker global growth, the US-China trade war, Brexit uncertainty and debt concerns in Italy have taken their toll on a fragile euro zone, making it harder for the central bank to withdraw its decade-long stimulus as planned. While investors had long stopped pricing in an ECB rate increase this year, few were expecting the bank to change its policy message, causing yields on European government bonds and the euro to fall after the announcement.
The German 10-year bund yield hit its lowest point since October 2016, falling as low as 0.061 percent. The Italian 10-year yield was down about 12.7 basis points, last at 2.487 percent. Treasury yields followed suit, with the 10-year benchmark note down 5.4 basis points at 2.638 percent. "The ECB news added to the rally that was already in motion," continuing the flight-to-quality trend the market has seen in the past few days, said George Goncalves, head of US rates strategy at Nomura Securities International.
"Even though equities are not under a lot of pressure," said Goncalves, "we're in an environment where all central banks are turning dovish and it's hard for rates to sell off." Government bond yields rise with expectations of interest-rate hikes. A pause in the hiking cycle, or an interest-rate cut, leads investors to seek safety in government debt while returns on riskier assets worsen, or become increasingly volatile.
The US federal government will release its employment report for February on Friday morning. Economists polled by Reuters expect to see 180,000 jobs added last month, after two months of staggering growth. The US added 304,000 jobs in January and 222,000 in December. A weekly report release earlier Thursday showed the number of Americans filing applications for unemployment benefits unexpectedly fell last week, pointing to strong labor market conditions despite signs that job growth was slowing.
While other data on Thursday showed an improvement in worker productivity in the fourth quarter, the trend remained sluggish. Labor costs continued to rise at a moderate pace in the last quarter, suggesting benign inflation pressures that support the Federal Reserve's so-called patient stance toward further interest rate increases this year.