U.S. Treasury yields declined on Thursday as jobless claims rose more than expected, while oil prices fell on renewed hopes for a U.S.-Iran deal.
The Labor Department reported an increase in weekly initial jobless claims by 13,000 to a seasonally adjusted 225,000, surpassing the forecasted 213,000. Meanwhile, U.S. crude prices dropped 3.1% to $93.04 per barrel, and Brent settled down 2.84% at $95.03 per barrel.
The yield on the benchmark U.S. 10-year Treasury note fell by 2 basis points to 4.471%, following the release of labor market data. Additionally, worker productivity increased at a revised 0.3% annualized rate last quarter, the slowest pace since the first quarter of 2025. Unit labor costs rose at a 1.8% rate, a downward revision from the previous 2.3% estimate.
“If we get a deal done, then we'll have a short-run reprieve.”
Thomas Urano, Co-Chief Investment Officer at Sage Advisory
The 30-year bond yield declined by 1.5 basis points to 4.975%, while the two-year U.S. Treasury yield, which typically aligns with Federal Reserve interest rate expectations, decreased by 3.9 basis points to 4.045%. Federal Reserve officials indicated that inflation remains a priority, with potential interest rate hikes on the horizon.
Market expectations have shifted from anticipating 50 basis points of cuts from the Fed this year to nearly 20 basis points in hikes, according to LSEG data. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.496%, while the 10-year TIPS breakeven rate was at 2.378%.
Background
The developments come amid ongoing geopolitical tensions, with Israel and Lebanon agreeing to a ceasefire, although complications remain with Hezbollah's rejection of the ceasefire and Israel's refusal to withdraw troops. The situation continues to influence market dynamics and investor sentiment.
Looking ahead, market participants will closely monitor the upcoming government payrolls report and any further signals from the Federal Reserve regarding interest rate policy. The evolving geopolitical landscape and labor market conditions will remain key factors influencing economic expectations.
