Will Federal Reserve refrain from speeding up the pace of interest rate hikes?

US Treasury DepartmentNYT News Service
The Treasury Department building in Washington
NEW YORK: Shorter-dated US Treasury yields dipped on Thursday, after labor market data showed weekly initial jobless claims rose more than expected last week, giving hope the Federal Reserve may now have the cushion to refrain from dialing up the pace of interest rate hikes.

New claims for unemployment benefits increased by 21,000 to a seasonally adjusted 211,000 for the week ended March 4, the most in five months last week, although the trend continues to point to a tight labor market.

“Investors have been looking for a spot for yields to crest, given how high they have moved and the fact the Fed seems committed to bringing down the inflation rate, any soft economic news encourages them to enter the market at those points,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

“It’s a probability bet investors are making, they want to be there for the turn.”

The yield on 10-year Treasury notes was up 0.4 basis points at 3.980%.

The jobless claims data comes ahead of Friday’s payrolls report, which is expected to show nonfarm payrolls increased by 205,000 jobs in February after surging 517,000 in January, according to a Reuters survey of economists. The unemployment rate is forecast unchanged at a more than 53-1/2-year low of 3.4%.

The yield on the 30-year Treasury bond was up 3.1 basis points at 3.908 %.

More supply will come to the market later on Thursday when the Treasury Department auctions $18 billion in 30-year bonds.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 102.1 basis points, its deepest inversion since 1981. An inversion is seen as a reliable recession indicator.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 6.9 basis points at 4.997%.

Shorter-dated yields have climbed this week, including a jump on Tuesday after U.S. Federal Reserve Chair Jerome Powell opened the door for higher and faster rate hikes and continued and reached 5.084% earlier on Wednesday, the highest level since June 15, 2007.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.569%, after closing at 2.547% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.348%, indicating the market sees inflation averaging 2.3% a year for the next decade.

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