Weekly jobless claims stronger than expected
Goolsbee says Fed should focus on inflation
(Updates to afternoon US trading)
NEW YORK, Jan 15 (Reuters) – U.S. Treasury yields were mostly higher on Thursday, after a round of economic data came in stronger than expected, slightly denting expectations the Federal Reserve will cut interest rates in the near term. The Labor Department said weekly initial jobless claims fell by 9,000 to a seasonally adjusted 198,000, below expectations of economists polled by Reuters calling for 215,000 claims.
A separate report showed U.S. import prices increased 0.4% over the two months from September to November. In addition, reports on manufacturing in New York State and the Mid-Atlantic region for January from the regional Federal Reserve Banks were stronger than expected.
“Nothing in terms of these releases has moved the needle in terms of a higher expectation for rate cuts, in fact, it seems to be stable to lower expectations,” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.
“There’s really virtually no chance of a cut at the January meeting, the first meeting where there’s even like a 50% chance that they cut rates isn’t until June and even that probability has come down in recent weeks. So there are likely scenarios where the Fed wouldn’t cut this year.” The yield on the benchmark U.S. 10-year Treasury note gained 1.6 basis points to 4.156%. Expectations for a rate cut by the Fed at its late January meeting stand at 5%, according to CME’s FedWatch Tool, while markets are currently pricing in a 21.6% chance for a cut of at least 25 basis points at its March meeting, down from 26.7% in the prior session and the roughly 50% chance a month ago. The yield on the 30-year bond slipped 0.8 basis point to 4.787%. Chicago Federal Reserve President Austan Goolsbee said the U.S. central bank should be focused on getting inflation down as there is ample evidence of job market stability.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, climbed 4.4 basis points to 3.558%. Kansas City Federal Reserve President Jeff Schmid reiterated his stance against cutting interest rates, calling inflation “too hot” and predicting that Trump administration policies will build the economy’s momentum and the demand that has been outpacing supply and putting upward pressure on prices. Meanwhile, San Francisco Federal Reserve President Mary Daly preached caution, and said that the central bank should be deliberate in calibrating policy, as economic data looks promising despite uncertainties and continued risks to both the Fed’s inflation and employment mandates.
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 positive 59.6 basis points.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.37%, a two-month high, after closing at 2.363% on Wednesday.
The 10-year TIPS breakeven rate was last at 2.297%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
(Reporting by Chuck Mikolajczak Editing by Nick Zieminski)
