Bond Report: Treasury yields climb on investor relief that government shutdown may be avoided

Treasurys slipped Thursday, pushing yields higher, after top Republicans said they were confident that Congress would avert a shutdown of the federal government.

What are yields doing?

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.99%  rose 4.5 basis points to 2.374%, while the 30-year Treasury bond TMUBMUSD30Y, +1.25% also known as the long bond, climbed 5.3 basis points to 2.772%. The two-year note TMUBMUSD02Y, -0.22%  was mostly unchanged at 1.806%.

Yields and debt prices move in opposite directions.

What’s driving markets?

Top Republicans said they would avoid a government shutdown by passing a short-term bill. Without fresh funding, the federal government would run out of money by midnight Friday. House Speaker Paul Ryan said he felt good that the funding measure would pass, Reuters reported.

That would allow the Republicans to concentrate on passing their tax bill. If the legislation leads to widening budget deficits, the Treasury Department will have to increase issuance, weighing on bond prices.

Investors who earlier in the day had taken shelter in Treasurys over the chance of a shutdown moved back into risky assets like stocks. All three benchmark stock indexes— the S&P 500 SPX, +0.29%  , the Nasdaq Composite COMP, +0.54%   and the Dow Jones Industrial Average DJIA, +0.29%   — rose Thursday.

What are analysts saying?

“The late-day selloff and steepening was attributed to last-minute negotiations relating to funding the government though we’ll admit this might be a case of explanation chasing the price action rather than the other way around,” wrote Ian Lyngen and Aaron Kohli, fixed-income strategists at BMO Capital Markets.

The yield curve steepening refers to when the gap between long-term yields and short-term yields widen.

What else is on investors’ radar?

The main data event of the week comes Friday morning. Economists surveyed by MarketWatch expect data to show the U.S. economy added 200,000 jobs in November after a 261,000 rise in nonfarm payrolls in October. The unemployment rate is forecast to remain at 4.1%.

But investors expecting bond market volatility after the data may be disappointed. Analysts at J.P. Morgan said bond traders have shifted their attention to inflation readings at the expense of labor market data. After the unemployment rate fell to unforeseen lows this year and inflation shrugged off the tightening labor market, the traditional relationship between low unemployment and rising inflation has come under scrutiny.

The Labor Department reported the number of Americans applying for first-time unemployment benefits fell by 2,000 to 236,000 in the week ending Dec. 2. Analysts surveyed by MarketWatch had expected the number of claims to come in at 240,000, up slightly from 238,000 the previous week.

See: Bond traders don’t care about nonfarm payrolls anymore, in one chart

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