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Treasurys are rallying for the third straight session to start 2017. Early buying comes despite pretty good economic data that saw intial jobless claims tumble to their lowest level since 1970 and the US service sector enjoy a “robust rise” in payrolls. Here’s a look at the scoreboard as of 11:08 a.m. ET:
2-year -3.2 bps @ 1.182% 3-year -4.9 bps @ 1.427% 5-year -6.1 bps @ 1.870% 7-year -6.5 bps @ 2.185% 10-year -6.0 bps @ 2.379% 30-year -5.6 bps @ 2.984%
The Treasury complex came under immense pressure in the weeks following the election amid speculation Donald Trump’s protectionist trade policy and plans for massive infrastructure spending would ignite the return of inflation in the US. Preciptating the decline was the Fed raising its key interest rate for just the second time since the financial crisis, and suggesting that it sees three rate hikes in 2017 versus its previous estimate of two. That selling ran yields up about 90 basis points at the long end of the curve, and caused the US 10-year yield to hit 2.63%, its highest level since September 2014.
However, the rise in yields has stalled out in recent weeks, and has begun to rollover. Today’s bid has pushed the 10-year yield below 2.40% to its lowest level since December 7, the week before the Fed meeting. The benchmark yield still has a long way to go before retracing the post-election move which began near 1.85%.
Thursday’s bid is having little impact on the yield curve as the 5-30-year spread holds at 111 bps. It was trading above 129 bps on election day. The flattening of the curve suggests that maybe the inflation everyone is expecting won’t come to fruition.