Bond Report: Treasury yields inch higher ahead of BOJ meeting

Long-term Treasury prices pulled back Thursday, pushing yields higher, as investors focused on economic data and braced for the outcome of a Bank of Japan policy meeting.

Market reaction to initial jobless claims, which saw a modest uptick from recent low levels, was muted.

Thursday’s modest climb in yields comes a day after the Federal Reserve left key interest rates unchanged and appeared open to a possibility of a rate increase as early as September.

“From a Fed perspective, policy makers will want to see more encouraging payroll data in addition to improved household data to be comfortable that all is well in the labor market. Today’s claims data shows no evidence of anything that might preclude continued improvement in the labor market data,” said Thomas Simons, senior money market economist at Jefferies.

Meanwhile, U.S. Treasury debt auctions this week were met with weakest demand in years.

A sale of $28 billion of 7-year Treasury notes is scheduled for Thursday afternoon, which comes on the heels of $26 billion of 2-year notes on Monday and $34 billion of 5-year notes on Tuesday, both of which saw poor demand.

“This week has been a tough week to play in auctions given there were two important central bank meetings: the Fed and the BOJ,” said Simons.

Most market participants are expecting the central bank of Japan to unveil massive monetary stimulus on Friday after public hints over the past several weeks.

“After radical policy actions had been talked publicly there is an opportunity for a huge disappointment. In light of the BOJ meeting, investors and traders have been reluctant to participate in auctions,” said Simons said.

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.68%  rose 1.5 basis points to 1.531% from 1.516% on Wednesday. Yields and prices move in opposite directions and one basis point is equal to one hundredth of a percentage point.

The yield on the 30-year bond TMUBMUSD30Y, +0.50% gained 2 basis points to 2.250% from 2.230%.

And the yield on the two-year note TMUBMUSD02Y, -1.08%  was largely unchanged at 0.726%.

In other markets, the yield on a 10-year Japanese bonds TMBMKJP-10Y, +6.70%  fell 2.3 basis points to negative 0.2805%.

In Europe, the yield on the benchmark 10-year German government bond, or bund TMBMKDE-10Y, -7.12%  was largely unchanged at negative 0.073%.

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