After a significant rise over the previous two sessions, U.S. Treasuries continued their upward trajectory on Thursday.
Bond prices exhibited modest strength during morning trading, eventually advancing more firmly into positive territory as the day progressed. Consequently, the yield on the benchmark ten-year note, which inversely correlates with its price, decreased by 5.7 basis points to 4.238 percent.
This marks the third consecutive session of decline for the ten-year yield, reaching its lowest closing level in over two months.
The sustained strength in Treasuries can be attributed to recent U.S. economic data that bolstered optimism regarding the outlook for interest rates.
Following a report of unexpectedly subdued consumer price inflation released yesterday, the Labor Department unveiled a report this morning showing a modest and unforeseen decrease in producer prices for May.
According to the report, the producer price index for final demand dipped by 0.2 percent in May, following a 0.5 percent increase in April. Economists had anticipated a 0.1 percent rise in producer prices.
The report further indicated that the annual rate of producer price growth slowed to 2.2 percent in May, down from an upwardly revised 2.3 percent in April. Economists had expected the annual rate to accelerate to 2.5 percent from the originally reported 2.2 percent for the previous month.
Additionally, the Labor Department issued a separate report showing an unexpected rise in initial claims for U.S. unemployment benefits for the week ending June 8th.
The report noted that initial jobless claims climbed to 242,000, an increase of 13,000 from the prior week's unrevised level of 229,000. Economists had anticipated a decline to 225,000.
With this surprising increase, jobless claims reached their highest level since hitting 248,000 for the week ending August 12, 2023.
"The latest data slightly opens the door wider for the Fed to consider an interest rate cut later this year," said Bill Adams, Chief Economist for Comerica Bank. "Our forecast at Comerica anticipates the Fed's first rate cut of this cycle in September, followed by a second cut in December."
These data points have sparked some hope that Fed officials may have been too conservative in predicting just one rate cut this year.
Further gains in Treasuries were also seen in the afternoon, following the Treasury Department's announcement that this month's auction of $22 billion worth of thirty-year bonds attracted above-average demand.
The thirty-year bond auction yielded a high of 4.403 percent with a bid-to-cover ratio of 2.49, surpassing the average bid-to-cover ratio of 2.39 seen in the last ten thirty-year bond auctions.
The bid-to-cover ratio, a measure of demand, indicates the number of bids for each dollar's worth of securities sold.
Friday's trading may be influenced by reactions to the University of Michigan's preliminary report on consumer sentiment for June, which includes readings on inflation expectations.
