US yields fall in choppy session as oil rises and equities sink

US Treasuries were in demand on Thursday as equity indexes sank and oil prices reversed some of Wednesday's losses while investors looked for safety as they moderated hopes that the US midterm elections would speed up progress towards peace in the Middle East.

Oil prices had tumbled more than 8% and equities had rallied on Wednesday after American voters handed control of Congress to the Democratic party in a decisive rebuke of the current Republican administration and US President Donald Trump, who started the war with Iran eight months ago.

"US voters seem to reject the idea of sustaining the war in Iran for an extended period of time. I think the realization is that this isn't an issue that can just be resolved," said Mike Lorizio, head of US rates & mortgage trading at Manulife Investment Management. "Just because voters aren't happy with it, it doesn't mean it's going to just automatically be reversed or come to a conclusion in the near term. That's why you're seeing some price reversal."

The number of Americans filing new claims for unemployment slipped to a 57-year low last week, indicating a resilient labor market. According to the Labor Department, initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 189,000 for the week ended October 31 compared with economist forecasts of 196,000.

"It's all part of the same kind of fundamental story of strong growth, inflationary concerns not going anywhere, and all just ripe for tightening Federal Reserve policy," Lorizio said.

However, US worker productivity grew faster than expected in the third quarter, depressing labor costs and supporting views that the labor market was not a source of inflation, which has faced upward pressure from elevated oil prices.

Investors were also monitoring comments from Fed officials on Thursday. Cleveland Federal Reserve President Beth Hammack said the US central bank has more work to do to get inflation down to its 2% target, as price pressures remain unacceptably high.

Also, Richmond Fed President Tom Barkin said that a gradual pace of rate increases would "make sense" at a time when inflation seems stuck above the central bank's 2% target amid solid demand, low unemployment, and broad-based price pressures.

In US equities, the Nasdaq tumbled and was on course to confirm a correction as steep losses in chip and data-center-related stocks weighed.

Earlier in the day, the Bank of England raised interest rates for the first time in over three years and warned that at least one more increase was likely if the US-Iran conflict continues, as it started on a path that its main peers have already embarked on.

The yield on the benchmark US 10-year Treasury note was down 4.9 basis points at 4.843% after touching its lowest level since September 9.

The yield on the 30-year bond was down 3 basis points at 5.25% after earlier hitting its lowest since September 8.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, was down 5.6 basis points at 4.525% after touching its lowest since September 10.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, steepened to a positive 31.4 basis points.

The 10-year TIPS breakeven rate was last at 2.224%, indicating the market sees inflation averaging about 2.2% a year for the next decade.
Add as a Reliable and Trusted News Source Add Now!
(You can now subscribe to our ETMarkets WhatsApp channel)