Bonds drift modestly lower as markets wait for Friday's Jackson Hole speech; jobless claims came in better than expected at 203K.
Bond markets opened this morning still working through Wednesday's PCE-driven losses, with the 10-year Treasury yield at 4.663%, up about 1.4 basis points from Wednesday's close of 4.649%. UMBS 5.5 is at 99.48, off 6 ticks; the 6.0 coupon is at 101.48, off 3 ticks. Rate sheets are opening in line with Wednesday's afternoon levels.
Jobless claims for the week ending August 22 came in at 203,000 — below the 208,000 consensus and the prior week's 206,000. A tighter labor market reading is not what bonds want, and yields ticked up accordingly. But the market's reaction was contained. The 10-year moved only modestly and has held in a tight range since the open, because Thursday's claims number is not the main event this week. The bond market is waiting for Jackson Hole. Kevin Warsh speaks Friday morning at the annual Fed symposium in Wyoming, and until that happens, directional conviction is thin. Traders are reluctant to take large positions ahead of a speech that could move yields meaningfully in either direction. The result is the kind of quiet, modestly weak session we're seeing now — not a selloff, just drift.
The Kansas City Fed's Jeff Schmid this morning described inflation as "stubborn and sticky" and said the policy rate is not restrictive. That's a hawkish read, and in a normal week it would generate more conversation. Today it's noise. A 7-year Treasury note auction is on the calendar for 1:00 PM Eastern — that will give the market something to digest this afternoon, and demand at auction can shift the intraday tone. But the real test is Friday.
For you as a borrower, this is not a moment to speculate on direction. The 30-year is in the 6.75% range. That's higher than many borrowers hoped when the cutting cycle started, and Wednesday's hotter headline PCE pushed the timeline for improvement further out. Jackson Hole speeches can move rates in either direction — a surprise dovish signal could pull yields down quickly; a hawkish or noncommittal message would likely leave the current level intact. If you have a deal that works at today's rate, Friday is not the time to leave a lock on the table. The upside of catching a dovish surprise is real, but so is the downside of catching the other kind.
— David Burson, NetRate Mortgage