Yields on U.S. government bonds took a downward turn on Thursday, propelled by escalating geopolitical tensions between Israel and Iran, coupled with cautious sentiments stemming from remarks made by Federal Reserve policymakers regarding interest rate management amidst sustained inflationary pressures.
During the trading session, the yield on the 2-year Treasury declined by 3.8 basis points to reach 4.641%, extending a trend of decreases observed in five out of the past seven trading days. Similarly, the yield on the 10-year Treasury slipped by 4.6 basis points to 4.308%, experiencing declines in 9 out of the past 12 sessions. Additionally, the yield on the 30-year Treasury fell by 3.9 basis points to 4.470%.
Market sentiment was influenced by statements made by Minneapolis Fed President Neel Kashkari, who suggested the potential scenario of no rate cuts in 2024 if inflation fails to demonstrate progress, alongside his projection of two reductions for this year. Moreover, comments from Philadelphia Fed President Patrick Harker highlighting persistent inflationary pressures, and Richmond Fed President Thomas Barkin advocating for a prudent approach to rate adjustments, further shaped investor outlook.
The decrease in yields reflects heightened demand for U.S. government bonds, underpinned by expectations that the Federal Reserve will effectively manage the inflationary environment. Concerns regarding potential policy missteps, wherein interest rates remain overly restrictive for an extended period, were also factored into market considerations. Moreover, the escalating tensions between Israel and Iran spurred flight-to-safety trades, driving up demand for Treasurys and other safe-haven assets, alongside an uptick in oil prices.
Earlier data released in the United States revealed an increase in initial jobless-benefit claims to a nine-week high of 221,000, although remaining within the range observed throughout the year. Market participants awaited the release of Friday’s nonfarm-payrolls report for March, anticipated to provide insights into job creation trends, with economists projecting the addition of around 200,000 new jobs for the month.