The 10-year U.S. Treasury yield fell as low as 1.25% on Thursday, its lowest point since February, continuing a sharp reversal in the bond market amid growing concern about the pace of the global economic recovery.
The yield on the benchmark 10-year Treasury note was 2.8 basis points lower at 1.293% by 4:00 p.m. ET, climbing back slightly after reaching 1.25% earlier in the session. The yield on the 30-year Treasury bond dipped 2.5 basis points to 1.919%. Yields move inversely to prices and 1 basis point equals 0.01 percentage points.
“This decline in bond yields could be signaling that the inflation burst is transitory, and/or that the Delta variant will slow growth, although at 1.25% this morning that seems extreme,” Ed Hyman, founder and chairman of Evercore ISI and head of economic research, said in a note Thursday.
Thursday’s weekly jobless claims report indicated a slowdown in job growth. First-time applicants for unemployment benefits unexpectedly jumped to 373,000 in the week ending July 3. Economists were looking to see 350,000 initial claims, according to Dow Jones.
The increase in initial filings for unemployment insurance comes after June’s jobs report on Friday showed the unemployment rate rose to 5.9%, higher than expected.
The spread of the more transmissible variant of Covid-19 also fueled worries about a deceleration in global economic growth, sending investors into the safety of U.S. Treasuries.
Japan declared a state of emergency for Tokyo that could reportedly lead to spectators being banned from the upcoming Olympic Games.
The yield decline in recent weeks represents a sharp reversal from a dramatic rise that started in late 2020. After entering January below 1%, the benchmark 10-year yield rose above 1.7% in March before retrenching near the 1.6% level for much of April.
The move has mystified investors and some believe it’s largely technical factors driving the decline in yields.
“Over the past few months, many portfolio managers were expecting the 10-year Treasury yield to rise and held short positions in bonds. With the Federal Reserve reiterating its patient stance on tapering in Wednesday’s minutes report, many portfolio managers changed course and covered their short positions in bonds, which drove up bond prices and pushed yields down,” George Ball, chairman of Sanders Morris Harris, said in a note Thursday.
The Fed on Wednesday released the minutes from its latest meeting on June 15-16.
Some members indicated that the economic recovery was proceeding faster than expected and was being accompanied by an outsized rise in inflation, both making the case for taking the Fed’s foot off the policy pedal.
However, the prevailing mindset was that there should be no rush and markets must be well prepared for any shifts.
Short term rates have not fallen at the same pace as long-term rates, causing a so-called flattening of the Treasury yield curve. Investors expect the central bank’s first move would be to slow its asset purchases while leaving its main rate at historic lows.
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— CNBC’s Pippa Stevens and Jeff Cox contributed to this market report.