U.S. Treasury Yields Mixed After Jobs Data, Tax Proposal
By Sebastian Pellejero
U.S. government bond yields swung between gains and declines
before closing lower Thursday after data showing the number of
Americans filing for unemployment fell to a new post-pandemic low
and reports that President Biden is planning to increase
The yield on the benchmark 10-year Treasury note rose as high as
1.587% during Thursday's session before settling at 1.554%,
according to Tradeweb, down 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
Yields later retreated along with stocks in the afternoon
following reports that said President Biden plans on funding some
of his anticipated fiscal spending plans by raising taxes on
capital gains and people in the top marginal income tax
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 market crosscurrents have left many shrugging 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
"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
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
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 email@example.com
(END) Dow Jones Newswires
April 22, 2021 16:18 ET (20:18 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.