The U.S. Treasury gained on Thursday as traders pushed back bets on the timing of the next interest-rate increase from the Federal Reserve. The benchmark 10-year note yields fell 2 basis points to 1.81 pct and 2-year Treasury yields were lower 1.62% at 0.75 pct.
While on Wednesday, Treasuries saw a mixed trend with buying in short-end contrasted by selling in the long-end. With a relatively light flow of economic data to reverse basic fundamentals, the short-end continued to sell on the view that the FOMC is likely to hold its stance till June and see how global economy performance in the new fiscal year.
On balance, we continue to expect the 10-Year yield to maintain its ongoing 1.80-2.00% trading range, implying that further selling into (or following) the March employment report on Friday, assuming that non-farm payrolls don’t surprise greatly to the downside.
“What Yellen has done is taken out any near-term danger of a Fed hike,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP.
“The Fed is going to be very cautious and when they say there is going to be a very slow and gradual increase in rate hikes in coming years they really do mean that and June rate increase seems to be off the table” he added.
With the March ADP estimate coming in around +200k, and generally maintained support from jobless claims, we expect the March employment report will give the Fed sufficient ammunition to delivery on its promise of gradual further increases in the months ahead. This could push Treasury yields higher, especially after month-end purchases are out of the way. But as we have highlighted before, any meaningful sell-off in Treasuries is likely to bring in buyers from overseas, Japan in particular, after fiscal year-end in March.
Ahead of the employment report on Friday, markets now look ahead to jobless claims and Chicago PMI data on Thursday.
The material has been provided by InstaForex Company – www.instaforex.com