U.S. Bonds Slump on Upbeat Jobless Claims, Crude Rallies
The U.S. government bond prices weakened on Thursday after data showed higher-than-expected initial jobless claims and export prices figure. Also, jump in crude oil prices led investors to favour riskier assets. The yield on the benchmark 10-year Treasury note which moves inversely to its price rose 3bps to 1.750 pct and the yield on the 2-year Treasury bond jumped 2bps to 0.746 pct by 1235 GMT.
The US Initial jobless claims increased +20k to 294k, recoding the highest level since 28 February 2015) for the week ending 7 May, as compared to unrevised 274k reading seen in the week prior, well above expectations for a 267k result. Similarly, the 4-week average was reported at 268.3k, from the unrevised 258.0k reading seen in the week prior. The insured unemployment rate held unchanged at 1.6%. Moreover, April export prices rose 0.5 pct m/m, against market expectation of 0.1 pct m/m, from prior 0.0 pct in March. Yesterday, the wholesale inventories rose 0.1 pct m/m, this comes in below market expectations for a rise of 0.3 pct m/m versus the revised -0.6 pct m/m reading that occurred in February (previous was -0.5 pct m/m). The weaker than expected increase in inventories stemmed from downward pressure seen in durables, which declined 0.1 pct m/m, offset by upward pressure seen from non-durables, which climbed 0.5 pct m/m.
The U.S Treasuries have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, the crude oil prices climbed after International Energy Agency said in its report that the global supply glut to shrink this year. They mentioned that non-OPEC output falling 800k barrel per day (bpd) in 2016, from previous forecast of 710k bpd as unplanned outages start to bite and global crude oil stocks to rise by just 200k bpd in the second half of 2016, as compared to 1.3 million bpd in first half. Nigeria, Libya and Venezuela have seen crude output fall 450k bpd from a year ago and further rally in oil prices to be tempered by brimming crude and product stocks, until more levels of inventory are reached, they added in a note. According to the US DOE, crude inventories decreased 3.4 million barrels, as compared to previous build of 2.8 million barrels for the week ending 6 May. This came alongside decreases seen in gasoline inventories of 1.2 million barrels, from prior 0.5 million barrels, also supported oil prices. The International benchmark Brent futures rose 0.90 pct to $48.02 and West Texas Intermediate (WTI) jumped 1.43 pct to $46.89 by 1215 GMT.
Ahead of the flurry of data coming at the end of the week, markets now await for 30-Year bond auctions on Thursday and will also look ahead to a lighter flow of data this week, highlighted by retail sales, producer prices, business inventories and University of Michigan consumer sentiment releases on Friday. Meanwhile, S&P 500 Futures rose 0.54 pts to 2,069.12 by 1245 GMT.