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The 10-year yield in the United States has fallen to a three-week low as weak data fans growth fears.

  • 19 May, 2022
  • 6:41 pm EEST

The 10-year yield in the United States has fallen to a three-week low as weak data fans growth fears.

US Treasury yields fell on Thursday, with those on benchmark 10-year notes falling to three-week lows, as continued softness in US economic data fueled growth concerns despite the Federal Reserve’s aggressive path of monetary tightening.

Yields fell in tandem with stock market weakness in the United States.

The 10-year yield in the United States fell to 2.772 % , the lowest level since late April, and was last down 7 basis points at 2.815 % .

US 30-year yields fell on the day as well, reaching a one-week low of 2.975 % . They were last at 3.019 % , a 5 basis point decrease.

Thursday’s data revealed yet another set of disappointing economic figures.

Initial claims for unemployment benefits unexpectedly increased last week, reaching a four-month high of 218,000 for the week ending May 14, the highest level since January. The figure most likely indicated a slowing in labor demand amid tightening financial conditions.

Nonetheless, the same report indicated that the labor market remained tight, with continuing claims at their lowest level since the end of 1969.

At the same time, a separate report from the Philadelphia Fed on Thursday showed its business conditions index dropped to a reading of 2.6 in May from 17.6 in April.

U.S. existing home sales also fell to their lowest in nearly two years in April, as house prices jumped to a record high amid a persistent lack of inventory.

“These releases’ aggregate influence is a weight upon Treasury yields and the dollar. We expect job growth to slow to 300,000 in May with downside risk,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.

He added that the drop in the Philadelphia Fed business index “suggests slower sequential growth.”

U.S. two-year yields were also weaker on the day, down 5.5 bps at 2.603% .

Kansas City Fed President Esther George, a voter on this year’s Federal Open Market Committee on Thursday reinforced expectations of multiple 50 basis-point hikes at upcoming Fed meetings. She, however, downplayed the idea that the Fed might shift to larger rate increases.

“We are good at 50 basis points right now, and I would have to see something very different to say we need to go further than that,” George said in an interview on CNBC.

U.S. rate futures on Thursday have priced a fed funds rate of 2.768%, compared with the current 0.83% level. The market has also factored in cumulative rate increases of 193 bps in 2022.

Inflation-focused macro investment firm Ruffer expanding in U.S. market

British fund manager Ruffer Investment Management is in talks with institutional investors to expand a recently launched U.S. investment vehicle it hopes will grow to $5 billion in assets over the next five years, according to a Ruffer executive.

Ruffer’s biggest allocation is to inflation-linked bonds, Investment Director Jenny Renton said, and its long-held view that markets will have to navigate structurally higher inflation is appealing to U.S investors.

“The timing was good, our story was resonating, our fears about inflation and inflation volatility were resonating,” Renton said in an interview on Monday.

Ruffer, which manages 26.2 billion pounds ($32.70 billion) in assets according to its website, launched a U.S. investment vehicle in January now worth $500 million, Renton said.

U.S. consumer prices have been rising at their fastest pace in decades in recent months, prompting the Federal Reserve to hike rates and reduce its balance sheet to cool the economy. This shift in its previously accommodative monetary stance has been weighing heavily on pretty much all asset classes in financial markets this year.

 

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