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Bond Report: Treasury yields drift higher, extending weekly climb

Treasury yields on Thursday were slightly higher ahead of economic data on U.S. weekly jobless benefit claims, while investors worry about rising inflation ahead of the next Federal Reserve policy meeting in early November.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
1.669%

yields 1.653%, slightly up from 1.635% at 3 p.m. Eastern Time on Wednesday.

The 2-year Treasury note
TMUBMUSD02Y,
0.403%

yields 0.392%, up from 0.373% a day ago.

The 30-year Treasury bond rate
TMUBMUSD30Y,
2.149%

is at 2.129%, compared with 2.111% Wednesday afternoon.

What’s driving the market?

Treasury yields are drifting higher with the Fed expected to announced the start of a reduction in its monthly bond purchases at its policy meeting on Nov. 2-3 and Fed officials in recent speeches expressing concern that inflation may mean higher interest rates are needed in 2022.

Fed Gov. Christopher Waller was set to discuss the U.S. economy at the Official Monetary and Financial Institutions Forum, at 9 a.m. Eastern Time Thursday, after earlier this week saying that “if monthly prints of inflation continue to run high…a more aggressive policy response than just tapering may well be warranted in 2022,” in a speech at the Stanford Institute for Economic Policy Research. 

On Wednesday, Fed Gov. Randal Quarles, said he sees “significant upside risks” to forecasts that inflation will decline sharply next year, speaking at the Milken Institute Global conference.

However, both Quarles and Cleveland Fed President Loretta Mester, in an interview with CNBC, have suggested rate hikes aren’t in the offing.

Later Thursday, New York Fed President John Williams moderates a discussion at the 3rd Bund Summit organized by China Finance 40 Forum at 9 p.m. ET.

Looking ahead, investors may key in on a $19 billion auction of five-year Treasury inflation-protected securities, or TIPS.

In U.S. economic reports, investors are looking for at 8:30 a.m. a weekly reading of initial jobless claims for the week ended Oct. 16 to come in at 300,000, up from 293,000 in the prior period. A report on October manufacturing activity in the Philadelphia area, the Philly Fed index, also is due at the same time.

Reports on existing home sales for September and leading economic indicators are out at 10 a.m.

What analysts are saying

“The recent surge in inflation expectations in the US and elsewhere has been boosting long-dated government bond yields. But today’s pullback in yields is likely to be short-lived as the US 5-year breakeven inflation rate has shot up to 2.9% and is showing no sign of easing,” wrote Raffi Boyadjian, lead investment analyst at XM.

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