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Bond Report: U.S. government bond yields follow European rates higher after ECB draws focus to asset purchases

Bond Report

U.S. Treasury yields traded higher on Thursday after the European Central Bank drew attention to its plans for its asset purchasing program at its latest policy update.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.105%

rose 1.8 basis points to 1.107%, while the 2-year note yield
TMUBMUSD02Y,
0.129%

fell 0.6 basis point to 0.123%. The 30-year bond yield
TMUBMUSD30Y,
1.868%

climbed 3.1 basis points to 1.872%.

What’s driving Treasurys?

The European Central Bank, as expected, made no changes to interest rates or its asset-buying program on Thursday. But the ECB’s suggestion that it may not use the full envelope of 1.85 trillion euros to buy assets depending on financial conditions, weighed on values for European government paper and U.S. Treasurys.

See: ECB leaves policy unchanged, but makes a ‘slight hawkish’ tweak to statement

The 10-year German government bond yield
TMBMKDE-10Y,
-0.493%

was up 3.1 basis points to negative 0.528%.

A slate of U.S. economic data in the morning gave a snapshot of the unemployment picture and housing market activity. Weekly jobless benefit claims fell 26,000 to 900,000, but remained at elevated levels.

Meanwhile, U.S. home builders broke ground on new homes at a seasonally-adjusted annual rate of 1.67 million in December, a 5.8% increase from the previous month.

An auction for 10-year Treasury inflation-protected securities pointed to robust demand for inflation protection.

What did market participants say?

” As expected, the ECB did not deliver a meaningful surprise today,” said Petr Krpata, a strategist at ING, but he noted it could be argued “the bias of the statement and of the press conference was towards a hawkish side.”

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