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Treasuries Extend Pullback Seen Late In Yesterday's Session

Treasuries moved notably lower over the course of the trading day on Thursday, extending the pullback seen late in the previous session.

Bond prices came under pressure in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.1 basis points to 2.552 percent.

The weakness among treasuries came as traders continued to react to yesterday’s remarks by Federal Reserve Chairman Jerome Powell suggesting the central bank is not likely to lower interest rates in the near future as some had hoped.

In his post-monetary policy meeting press conference, Powell said the Fed sees “transitory factors” contributing to recent low inflation readings.

Powell said the Fed would take persistently low inflation into account when setting policy but currently expects inflation to return to the 2 percent objective.

Traders were also digesting a batch of largely upbeat U.S. economic data, including a Labor Department report showing a spike in labor productivity.

The Labor Department said productivity surged up by 3.6 percent in the first quarter after climbing by a downwardly revised 1.3 percent in the fourth quarter.

Economists had expected production to jump by 2.2 percent compared to the 1.9 percent increase that had been reported for the previous quarter.

Meanwhile, the report also said unit labor costs dropped by 0.9 percent in the first quarter after soaring by 2.5 percent in the fourth quarter.

The pullback in unit labor costs came as a surprise to economists, who had expected costs to climb by 1.5 percent during the quarter.

“The good news is the economy is entirely capable of producing the kind of productivity necessary to keep inflation in check if growth accelerates. Hence, we can have faster growth, and real wage increases, too,” said FTN Financial Chief Economist Chris Low.

He added, “The bad news, as featured prominently in yesterday’s post-FOMC press conference, the Fed will continue to fight to prevent either from becoming a sustained reality, for our own good, of course.”

A separate report from the Commerce Department showed new orders for manufactured goods jumped by more than expected in March amid a substantial rebound in orders for transportation equipment.

The Commerce Department said factory orders spiked by 1.9 percent in March after falling by a revised 0.3 percent in February. Economists had expected orders to surge up by 1.5 percent.

Trading on Friday is likely to be driven by reaction to the Labor Department’s report on the employment situation in the month of April.

Employment is expected to increase by 185,000 jobs in April following the addition of 196,000 jobs in March, while the unemployment rate is expected to hold at 3.8 percent.

The jobs data is likely to overshadow a separate report on service sector activity, which is expected to show a modest acceleration in the pace of growth.

The material has been provided by InstaForex Company – www.instaforex.com