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Treasury yields extend bounce after weak 7-year note auction in final full trading day of 2023

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Treasury yields moved higher Thursday, extending their rise after a weakly received sale of 7-year notes in the final full trading session of 2023.

Sifma, the finance-industry trade group, has recommended that U.S. bond trading close an hour early, at 2 p.m. Eastern, on Friday. Financial markets in the U.S. and much of the world will be closed Monday for New Year’s Day.

What yields are doing

The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
rose 3.9 basis points to 4.281, based on 3 p.m. Eastern levels, according to Dow Jones Market Data. The yield fell to its lowest since May in Wednesday’s session. Yields and debt prices move opposite each other.

The 10-year Treasury note yield
BX:TMUBMUSD10Y
rose 6.1 basis points to 3.849%.

The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
rose 4.4 basis points to 3.988%. Yields on both the 10-year and 30-year notes dropped Wednesday to their lowest levels since July.

Market drivers

Yields extended their rise after the Treasury Department sold $40 billion in 7-year notes
BX:TMUBMUSD07Y,
producing a high yield of 3.859%, versus a when-issued yield of around 3.84% ahead of the sale.

Yields remain lower on the week, however, and have declined sharply since the 10-year topped 5% in October, a decline accelerated by expectations for the Federal Reserve to begin cutting interest rates in 2024.

The path of least resistance for yields remains lower thanks to the Fed’s dovish pivot, “and until economic data or Fed speak causes a reversal of that momentum, it’s not a question of if yields will decline, it’s a question of ‘by how much,’” said Tom Essaye, founder of Sevens Report Research, in a note.

The disappointing 7-year result stood in contrast to a sale Wednesday of $58 billion in 5-year notes that was easily absorbed, and which followed a sale of 2-year notes a day earlier.

“The U.S. 5-year paper saw a bumper demand, as investors continued to pile in to secure good deals at the current yields based on the expectation that the yields will further crumble when the Fed starts chopping the rates,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note.

Data released Thursday showed the number of Americans applying for first-time unemployment benefits had risen for a second straight week. Initial jobless claims rose by 12,000, to 218,000, in the week ended Dec. 23, according to Labor Department data.

The U.S. trade deficit in goods widened 0.8% to $90.3 billion in November, according to an advanced estimate from the Commerce Department.

Pending home-sales data showed sales were flat in November compared with the previous month.

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