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Bond Report: Treasury yields drift higher, extending weekly climb, as weekly jobless claims fall to pandemic low

Treasury yields were slightly higher Thursday as U.S. weekly jobless benefit claims fell to a pandemic low of 290,000, and investors worried about rising inflation ahead of the next Federal Reserve policy meeting in early November.

What are yields doing?

The 10-year Treasury note

yields 1.658%, up from 1.635% at 3 p.m. Eastern Time on Wednesday.

The 2-year Treasury note

yields 0.408%, up from 0.373% a day ago.

The 30-year Treasury bond rate

is at 2.125%, compared with 2.111% Wednesday afternoon.

What’s driving the market?

Treasury yields were drifting higher as weekly jobless claims showed companies shying away from layoffs amid the biggest labor shortage in decades.

A reading of initial jobless claims for the week ended Oct. 16 dropped by 6,000 to 290,000 in the seven days ended Oct. 16. That’s below the 300,000 estimated new claims that had been expected from economists polled by The Wall Street Journal.

Meanwhile, the Philadelphia Fed’s manufacturing index fell to 23.8 in October from 30.7 in the prior month. The reading was still in solid growth territory, economists said, with manufacturing a bright spot in the economy. 

Existing home sales improved in September, rising 7% on a monthly basis and reaching a seasonally-adjusted annual rate of 6.29 million. The U.S. leading economic index grew a softer 0.2% in September and pointed toward somewhat slower growth, the Conference Board said Thursday.

The Fed is expected to announced the start of a reduction in its monthly bond purchases at its policy meeting on Nov. 2-3. In recent speeches, policy makers have expressed concern that inflation may mean higher interest rates are needed in 2022.

On Wednesday, Fed Gov. Randal Quarles, speaking at the Milken Institute Global conference, said he sees “significant upside risks” to forecasts that inflation will decline sharply next year. However, Cleveland Fed President Loretta Mester, in an interview with CNBC, has suggested rate hikes aren’t in the offing.

Later Thursday, New York Fed President John Williams moderates a discussion at the 3rd Bund Summit organized by China Finance 40 Forum at 9 p.m. ET.

Looking ahead, investors may key in on a $19 billion auction of five-year Treasury inflation-protected securities, or TIPS.

What analysts are saying

“The  market is trying to figure out where we shake out on inflation,” said Rob Daly, director of fixed-income at Glenmede Investment Management in Philadelphia.  “There are a lot more questions than answers on what inflation is going to do for the rest of the year into 2022, and how it can affect risk assets. I think we can have more durable inflation, but I’m not sure it’s going to be punitive.”

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