Treasury prices rebounded Thursday, pulling yields back from the highest level in nearly a month.
In morning trade, a flurry of stronger-than-expected economic data from the U.S. also weighed on Treasury prices, pushing yields to their highest levels since the U.K.’s June 23 vote to leave the European Union.
But as stocks retreated from all-time highs set a day earlier and oil prices took a dive, pressured by ample U.S. stockpiles of gasoline, and a slower fall in crude output, selling in the Treasury market abated.
The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, -1.79% ended down 1.9 basis points at 1.563%, after rising as high as 1.623%, according to Tradeweb.
In Europe, the yield on the benchmark 10-year German bond TMBMKDE-10Y, -69.88% ended unchanged at negative 0.072%.
The combination of the ECB staying put on rates, though not unexpected, and strong economic numbers from the U.S. initially “led the Treasury market to break into a higher range for [yields],” said Aaron Kohli, interest-rate strategist at BMO Capital Markets.
Meanwhile, stronger-than-expected corporate earnings results not only have recently propelled stocks to all-time highs but have also pushed Treasury yields higher as they are viewed as showing that “U.S. companies are doing well so the economy is doing well,” said Ninh Chung, head of investment strategy at SVB Asset Management.
On Thursday, the 10-year benchmark yield broke above 1.60% for the first time since the Brexit vote sparked a panicked Treasury rally that brought yields to all-time lows.
But Thursday’s market moves proved to be all about correlations, according to BMO’s Kohli. “As soon as crude pulled back [Treasury] yields followed,” he said, while a rally in the Japanese yen USDJPY, -1.06% typically viewed as a haven, also helped push yields lower.
ECB President Mario Draghi said the market had a “fairly resilient” reaction to Brexit, but that risks to the outlook of eurozone’s economy remain tilted to the downside, in part due to worries about Brexit fallout.
Draghi reiterated that the central bank intends to keep rates at current or lower levels for an “extended period” and that its program of monthly bond buys would run until at least March 2017 and possibly beyond.
On the U.S. economic front, the number of Americans who applied for unemployment benefits last week fell to its second lowest level of a seven-year-old economic expansion that shows no signs of flagging.
Existing home sales jumped to their highest level since February 2007 and the leading economic index for the U.S. rose in June after declining in the prior month.
But activity of U.S. manufacturers in the Philadelphia region contracted again in July, suggesting manufacturing continues to struggle.