Treasuries saw substantial weakness during trading on Thursday, extending the modest pullback seen in the previous session.
Bond prices moved sharply lower over the course of the session before closing firmly in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 15.2 basis points to 2.33 percent.
With the sharp increase on the day, the ten-year yield climbed well off their one-month closing low it set on Tuesday.
The sell-off by treasuries was partly in reaction to remarks by European Central Bank president Mario Draghi, who offered less stimulus than the market consensus had expected.
While Draghi announced an extension of the ECB’s asset purchase program until March of 2017, traders seemed disappointed the bank did not go further.
Draghi’s press conference came after the ECB cut its deposit rate by a relatively modest 10 basis points to a new low of negative 0.3 percent earlier in the day.
“Santa Mario did not turn into the Grinch,” said Carsten Brzeski, ING Germany’s chief economist. “However, his long-awaited early Christmas afternoon left many market participants disappointed like small kids who receive less and smaller presents than expected on Christmas Eve.”
Traders were also reacting to Federal Reserve Chair Janet Yellen’s testimony before the congressional Joint Economic Committee.
Yellen’s prepared remarks were essentially unchanged from a speech she delivered Wednesday, when she seemed to signify the central bank remains on track to raise interest rates later this month.
“On balance, economic and financial information received since our October meeting has been consistent with our expectation of continued improvement in the labor market,” Yellen said.
She added, “And, as I have noted, continuing improvement in the labor market helps strengthen our confidence that inflation will move back to our 2 percent objective over the medium term.”
However, Yellen acknowledged that the Fed will receive additional economic data before the meeting later this month, including the closely watched monthly jobs report due on Friday.
On the U.S. economic front, the Institute for Supply Management released a report this morning showing that the pace of growth in U.S. service sector activity slowed more than expected in November.
The ISM said its non-manufacturing index dropped to 55.9 in November from 59.1 in October. While a reading above 50 indicates continued growth in the service sector, economists had expected the index to show a more modest pullback to 58.2.
A separate report from the Commerce Department said factory orders rose slightly more than expected in October, while the Labor Department said jobless claims rose in line with estimates in the week ended November 28th.
The Labor Department’s monthly jobs report is likely to be in focus on Friday due to its potential impact on the outlook for interest rates.
Economists expect the report to show an increase of about 190,000 jobs in November, while the unemployment rate is expected to hold at a seven-year low of 5.0 percent.
The jobs report is likely to overshadow the Commerce Department’s report on international trade, which is expected to show the U.S. trade deficit narrowed to $40.6 billion in October.
The material has been provided by InstaForex Company – www.instaforex.com