While treasuries managed to end the previous session modestly higher following the Federal Reserve’s monetary policy announcement, substantial selling pressure emerged during trading on Thursday.
Bond prices moved sharply lower in early trading and remained firmly negative throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, spiked 13.1 basis points 4.480 percent.
The ten-year yield more than offset the slight drop seen during yesterday’s trading, reaching its highest closing level since October 2007.
The sell-off by treasuries came as the Fed left interest rates unchanged as widely expected on Wednesday but forecast another rate hike before the end of the year as well as keeping rates at elevated levels for longer than previously anticipated.
“12 of 19 governors at this point currently favor one more interest rate increase in the next two meetings before the end of the year,” said Alex McGrath, Chief Investment officer for NorthEnd Private Wealth. “Additionally the dot plot for rate expectations in 2024 was higher than it had been in previous meetings signaling a hawkish outlook for rates next year, cementing their higher for longer stance.”
He added, “Heading into the fourth quarter with rate expectations remaining elevated, we are more than likely in for a choppy end of the year as the markets digest an outlook less favorable for the growth assets that have driven the market for 2023.”
Adding to the concerns about interest rates, the Labor Department released a report this morning showing first-time claims for U.S. unemployment benefits unexpectedly fell to a seven-month low in the week ended September 16th.
The report said initial jobless claims dipped to 201,000, a decrease of 20,000 from the previous week’s revised level of 221,000.
Economists had expected jobless claims to inch up to 225,000 from the 220,000 originally reported for the previous week.
With the unexpected decrease, jobless claims fell to their lowest level since hitting 199,000 in the week ended January 28th.
However, Nancy Vanden Houten, Lead .S. Economist at Oxford Economics, said, “The claims data don’t change our call for the Fed to keep rates steady before embarking on a very gradual pace of rate cuts in mid-2024.”
“A sharp rise in unemployment and claims isn’t a prerequisite for the Fed to stop raising rates,” she added. “Fed Chair Powell yesterday noted that the labor market is coming into better balance without a rise in the unemployment rate.”
Following the slew of data released this morning, the U.S. economic calendar is relatively quiet on Friday, potentially leading to choppy trading.
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