After moving to the upside late in the previous sessions, treasuries pulled back sharply during trading on Thursday.
Bond prices came under significant pressure in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, spiked by 19.8 basis points to 3.708 percent.
The ten-year yield more than offset the 6.1 basis point drop seen on Wednesday, ending the session at its highest closing level in over eleven years.
The sell-off by treasuries came as traders continued to react to the Federal Reserve’s third straight 75 basis point interest rate hike on Wednesday.
The Fed’s economic projections suggested further aggressive interest rates in the final two meetings of the year, as the central bank continues its aggressive efforts to combat elevated inflation
Several other central banks around the world followed the Fed’s lead, including the Bank of England, which raised interest rates by 50 basis points in a split decision.
“The Fed has succeeded in convincing markets that they will remain aggressive with fighting inflation and that has many expecting another 75bp rate increase in November,” said Edward Moya, senior market analyst at OANDA.
“The aftermath following the Fed was a wave of aggressive tightening by several other central banks,” he added. “Most of these rate hikes around the world are not done yet which means the race to restrictive territory won’t be over until closer to the end of the year.”
The next Fed meeting is over a month away, giving traders a lot of time to analyze incoming economic data and try to determine the effect of the recent string of rate hikes.
Reports on inflation and the labor market are likely to be in focus in the coming weeks, as traders look for signs the Fed could alter the aggressive plan that has been laid out.
The Labor Department released a report this morning showing an uptick in jobless claims in the week ended September 17th.
The report showed initial jobless claims inched up to 213,000, an increase of 5,000 from the previous week’s revised level of 208,000.
Economists had expected jobless claims to edge up to 218,000 from the 213,000 originally reported for the previous week.
The modest increase came after jobless claims dropped to their lowest level since the week ended May 28th in the previous week.
Meanwhile, the Conference Board released a separate report showing its index of leading U.S. economic indicators declined for the sixth consecutive month in August.
The Conference Board said its leading economic index fell by 0.3 percent in August after sliding by a revised 0.5 percent in July.
Economists had expected the leading economic index to come in unchanged compared to the 0.4 percent drop originally reported for the previous month.
A lack of major U.S. economic data may lead to light trading activity on Friday, although traders are likely to keep an eye on Fed Chair Jerome Powell’s opening remarks at a Fed Listens event.
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