The yield on the 10-year bond rose 3.6 basis points to 4.581% after June retail sales met expectations and unemployment claims fell more than anticipated.
Investors in US government debt adjusted positions on Thursday after learning that June retail sales rose 0.2%, in line with expectations, while weekly unemployment claims dropped to 208,000, below the forecast of 217,000. Both indicators, published by the Departments of Commerce and Labor respectively, did not significantly alter expectations regarding Federal Reserve monetary policy.
Moderate Rise in Yields After Two Days of Declines
The benchmark 10-year bond yield gained 3.6 basis points to 4.581%, after losing 6.5 basis points in the previous two sessions. During the same period, consumer and producer inflation data were more moderate than expected, which had cooled bets on a short-term rate hike.
The 30-year bond also rose, advancing 2.9 basis points to 5.112%. Meanwhile, the yield on the two-year debt — more sensitive to rate expectations — increased 3.8 basis points, reaching 4.166%. The yield curve between the two- and ten-year papers remained at 41.3 basis points, with no clear signs of inversion.
The Market Seeks Clues About the Fed's Next Decision
Tom Simons from Jefferies in New York noted that “there is a lot of nervousness in the market, as there is no consensus on how to interpret many of these data points in the context of what the Fed might do.” The combination of stable consumption and a tight labour market, but with contained inflation, keeps investors on the sidelines.
For Spanish investors with exposure to US bonds, this rise in yields implies a slight improvement in the returns of fixed-income portfolios, although it also reflects uncertainty about the Fed's next move. The next meeting of the Federal Open Market Committee will be held at the end of the month, and this week's data does not clarify doubts about whether there will be a pause or a new adjustment.
“There is a lot of nervousness in the market, as there is no consensus on how to interpret many of these data points in the context of what the Fed might do,” said Tom Simons from Jefferies.
What Implications Does This Have for Investors?
Those holding long-term Treasury bonds have seen the yield offered when purchasing new debt improve slightly. However, recent volatility — with yield drops followed by rises — advises caution. Analysts suggest paying attention to the evolution of inflation and employment in the coming weeks to anticipate Fed movements.
In the secondary market, bond prices move in the opposite direction to yields: when yields rise, prices fall. Therefore, those who already own bonds purchased earlier will see a temporary loss, while for new buyers, the coupon becomes more attractive. The final decision will depend on the data released before the Fed meeting, scheduled for the end of July.
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