MC: Treasury yields inch higher on strong data, as Greece looms
Treasury yields edged higher Thursday as some risk appetite, fueled by stronger-than-expected U.S. economic data, counteracted flight-to-safety flows amid increasing Greek jitters.
Consumer spending surged 0.9% in May, marking the biggest gain in six years and confirming the Federal Reserve’s view that the first-quarter slump was transitory. A jobless-claims report also showed that layoffs remain quite low amid a steady increase in hiring and a tightening labor market.
The reports are in line with the Fed’s prediction that the economic growth is picking up in the second-quarter, enabling the central bank to raise interest rates for the first time in nearly a decade as early as September.
Though the reports “keep the Fed on track for a rate hike later this year,” the rise in Treasury yields was somewhat contained by fears that a deal between Greece and its creditors is unlikely, said Kathy Jones, chief fixed-income strategist at Schwab Center for Financial Research.
Recently the 10-year Treasury yield has seen a “cap at 2.44-ish — which would probably be higher if the Greek situation wasn’t weighing on the market,” Jones said.
Another reason that has kept yields in check is the fact that consumption spending increased, the inflation data remains quite soft and far from Fed’s long-term target of 2%, Jones added.
The yield on the 10-year Treasury TMUBMUSD10Y, +1.95% rose 2.3 basis point to 2.394%, according to Tradeweb. The two-year yield TMUBMUSD02Y, +3.45% increased 1.6 basis point to 0.700% and the yield on the 30-year TMUBMUSD30Y, +1.08% Treasury rose 1.5 basis points to 3.156%.
After increased optimism for a deal between Greece and its creditors earlier this week, on Thursday the prospects of an agreement appeared to grow increasingly unlikely. Meanwhile, U.S. stocks were moving modestly higher as the Greek drama played out and economic reports proved healthier.
As European stocks also struggled, government bond yields were slightly higher across the eurozone, with the yield on the German 10-year TMBMKDE-10Y, +2.86% known as the bund, up 0.3 basis point to 0.848%. Meanwhile, the Greek 10-year yield rose 6.5 basis points to 11.034%, after plunging 194.9 basis points earlier this week.
