U.S. Treasury yields dipped Thursday as investors assessed the possibility of further rate hikes, and a batch of economic data that suggested ongoing inflationary pressures and labor market strength.
The yield on the 10-year Treasury last traded at 4.28%, after falling by 1 basis point, The yield on the 2-year Treasury fell 4 basis points to 4.983%, hovering near the 5% level.
Yields and prices move in opposite directions and one basis point is equivalent to 0.01%.
Uncertainty about the Federal Reserve’s monetary policy outlook has spread amongst investors as recent data signals continuing inflationary pressures and a tight labor market.
Traders assessed a series of economic reports Thursday morning, further adding to concerns that the Federal Reserve’s hiking cycle may not be over just yet. This included fewer-than-expected jobless claims and a greater-than-expected uptick in labor costs for the second quarter.
This comes after Wednesday’s ISM Services index showed a bigger-than-forecast expansion of the services sector in August. Markets have also grappled in recent days with a rise in oil prices.
“Today’s jobless claims and labor cost report feed worries about higher rates,” said David Russell, global head of market strategy at TradeStation. “They might not put September’s Fed meeting back in play for a hike, but they increase the odds of a more hawkish dot plot.”
Traders will continue to monitor the 10-year Treasury yield, he said, adding that a breakout above October’s peak could heavily weigh on equities.
Markets are still pricing in a 93% chance that the Fed will keep rates unchanged when it meets later this month according to CME’s FedWatch tool. Expectations for a rate hike at the November however were last at roughly 45%.
