By Sebastian Pellejero 

U.S. government-bond yields climbed Thursday after data showed the number of Americans filing for unemployment fell to a new post-pandemic low.

The yield on the benchmark 10-year Treasury note recently traded at 1.582%, according to Tradeweb, up from 1.566% at Wednesday's close.

Yields, which rise when bond prices fall, climbed overnight and after the Labor Department said the number of workers applying for jobless benefits fell to 547,000 last week -- the lowest level since the pandemic started last spring and better than forecasts by economists surveyed by The Wall Street Journal. Yields then fell at the start of the U.S. session before resuming their climb later in the day.

Investors tend to trade Treasurys based on their expectations for the economy, generally fleeing the safety of government debt for riskier assets such as stocks when they expect growth and rising inflation, which erodes the purchasing power of bonds' fixed payments. But many have shrugged off positive economic data in recent weeks, with the 10-year yield retreating from a recent peak of 1.749% reached in March.

The recent calm in the Treasury market contrasts with early-year selling that pushed yields to their highest levels since the pandemic started. Some investors bet that the stimulus- and vaccine-fueled economic rebound could generate higher inflation and, eventually, interest-rate increases from the Federal Reserve sooner than officials are forecasting.

Helping to suppress yields is the Fed's commitment to maintaining low interest rates and buying billions of dollars worth of bonds until the labor market recovers and inflation stays above 2%. Officials have repeatedly said that the U.S. economy is still far from registering substantial economic improvements that would prompt any changes in monetary policy.

But as the data continues to improve, the Fed will face a challenge in communicating eventual changes to monetary policies to investors, said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

"The market has not been super reactive to [recent] strong numbers, but as the data improves, you'll start to get concerns from investors that the Fed might become less dovish," he said.

The European Central Bank on Thursday left short-term interest rates unchanged and made no changes to its bond-buying efforts. A day earlier, the Bank of Canada announced it would begin scaling back its asset purchases while also signaling that its 2% inflation target may be reached earlier than 2023. That means that the central bank could raise short-term interest rates sooner than anticipated.

There also are signs that more foreign buyers are coming back to the Treasury market in significant volumes, lured by yields that remain attractive even when hedged for currency fluctuations. Foreign investors purchased around $135 billion worth of long-term Treasurys on a net basis in January and February, according to data recently compiled by Citi -- the best two-month start to a year since 2012.

While foreign investors have added $195 billion to their Treasury holdings since July, that only amounts to around 34% of the amount of Treasurys they sold during the first six months of 2020, indicating room for more buying.

But buying from foreign investors and even pension funds may not be enough to quell a rise in yields, said Mr. Goldberg. His firm is forecasting the 10-year yield to rise to 2% by the end of the year, supported by improving economic data and passage of a fiscal package later this year.

"The market is going to get some pushback on the edges, but a lot of the fundamentals point to higher rates," he said.

Write to Sebastian Pellejero at


(END) Dow Jones Newswires

April 22, 2021 13:25 ET (17:25 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.