Optimism About Debt Ceiling Deal Continues To Weigh On Treasuries

Extending the downward trend seen over the past several sessions, treasuries moved notably lower during trading on Thursday.

Bond prices moved to the downside early in the day and remained firmly negative throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is climbed 6.7 basis points at 3.648 percent.

With the continued increase on the day, the ten-year yield ended the session at its highest closing level in over two months.

Optimism lawmakers will eventually reach an agreement on raising the U.S. debt ceiling contributed to the continued weakness among treasuries.

Following a meeting earlier in the week, President Joe Biden and House Speaker Kevin McCarthy, R-Calif., both expressed optimism a deal will be reached.

Remarks from Dallas Federal Reserve President Lorie Logan suggesting recent economic doesn’t justify pausing interest next month also weighed on treasuries.

“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” Logan said in a speech to bankers in San Antonio. “The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”

On the U.S. economic front, the Labor Department released a report showing first-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 13th.

The report said initial jobless claims slid to 242,000, a decrease of 22,000 from the previous week’s unrevised level of 264,000. Economists had expected jobless claims to dip to 254,000.

The bigger than expected drop came after jobless claims reached their highest level since the week ended October 30, 2021 in the previous week.

A separate report released by the Federal Reserve Bank of Philadelphia showed a continued contraction in regional manufacturing in the month of May, although the pace of contraction slowed by more than expected.

The Philly Fed said its diffusion index for current activity surged to a negative 10.4 in May from a negative 31.3 in April.

While a negative reading still indicates a contraction in regional manufacturing activity, economists had expected the index to show a more modest recovery to a negative 19.8.

The bigger than expected rebound came after the Philly Fed Index dropped to its lowest level since May 2020 in the previous month.

The National Association of Realtors also released a report unexpectedly showing a steep drop in U.S. existing home sales in the month of April.

NAR said existing home sales plunged by 3.4 percent to an annual rate of 4.28 million in April after tumbling by 2.6 percent to a revised rate of 4.43 million in March.

The extended pullback surprised economists, who had expected existing home sales to inch up by 0.1 percent compared to the 2.4 percent slump originally reported for the previous month.

Remarks by Federal Reserve Chair Jerome Powell are likely to be in focus on Friday along with any news regarding the debt ceiling negotiations.

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