30-year Treasury yield drops by most since March as Fed-is-done trading takes hold

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  was little changed at 4.975%, versus 4.971% on Wednesday. Yields move in the opposite direction to prices.

• The yield on the 10-year Treasury
  BX:TMUBMUSD10Y
  fell 12.2 basis points to 4.668% from 4.790% on Wednesday.

• The yield on the 30-year Treasury
  BX:TMUBMUSD30Y
  declined 15.4 basis points to 4.820% from 4.974% on Wednesday. That’s the biggest one-day drop for the 30-year rate since March 10, based on 3 p.m. Eastern time figures from Dow Jones Market Data.

• Thursday’s levels are the lowest closes for the 10- and 30-year rates since Oct. 13.

What drove markets

Data released on Thursday showed that initial jobless claims rose by 5,000 to a seven-week high of 217,000 last week, revealing some softening in a sturdy U.S. labor market. The report helped buttress the view that U.S. economic growth may start to slow and that the Federal Reserve could be done hiking interest rates.

Fed officials voted unanimously to hold their main interest-rate target at a 22-year high of 5.25%-5.5% on Wednesday, but they also left the option of a rate hike at some point in the future on the table. Markets generally had a dovish take on the Fed’s decision — with traders focusing on the part of the central bank’s policy statement that suggested that the recent rise in Treasury yields is tightening financial conditions and is likely to weigh on the economy.

Read: Stock, bond markets jump on a Fed-is-done trade that may be too early to call

In other data on Thursday, the productivity of U.S. workers rose at a 4.7% annual clip in the third quarter, the fastest clip since the third quarter of 2020.

What strategists are saying

“As expected, the [Federal Open Market Committee] maintained the fed-funds rate at between 5.25-5.5%, skipping hiking again since the July meeting. Once again higher long-term yields were cited as a major catalyst for the Fed to be patient,” said Marvin Loh, senior global macroeconomic strategist at Boston-based State Street.

“During the presser, [Fed Chair Jerome] Powell tried to retain optionality for another hike, but it appears to us that the bar for another hike is higher now with financial conditions tightening over the fall,” Loh wrote in an email. “The challenge for the Fed is that the data has not yet convincingly moved to a place where 2% inflation can easily become a base case, so looser financial conditions can change the Fed outlook quickly.”