Investor optimism rebounded on Thursday after the events of wicked Wednesday, which included the three and a half hour hiatus in trading on the NYSE, dramatic selloffs amid falling prices on Chinese markets and continuing uncertainty around the ever present Greek tragedy.
Global equity markets responded positively on Thursday as equity markets rebounded. Following on the upsurge in equities, treasury prices declined as yields were pushed higher.
The Bureau of Labor Statistics data released earlier in the week revealing that claims for new unemployment benefits had risen to their highest levels since February, added to the Treasury selling momentum which started with the increase in equities on global markets.
According to Alex McKnight, investment manager at GAM, the Treasury sell off has been driven by events in other markets in the recent past.
McKnight said, “To understand what causes Thursday's sell off, look at what caused the intense buying over the last few days: fears over Greece and China.”
The treasury market, which is viewed as a safe haven for investors, saw increased selling as U.S. equity markets moved higher.
Tradeweb reports that the yield on the 10 year Treasury (TMUBMUSD10Y, +1.25%) increased by 6.3 basis points to 2.269%. Also, the two year yield (TMUBMUSDO2Y, +2.7%) increased 3.6 basis points to 0.581% while the yield on the 30-year Treasury (TMUBMUSDY, +0.77%) went up 7 basis points to 3.055%. The yield moves up as the price moves down with higher returns on investments.
Further impetus for the drop in Treasury prices was provided by the release of the minutes of the June Federal Reserve meeting which revealed that only one of the ten voting members was ready to implement a rate hike in June.
Alex McKnight said that the Fed was expecting improvement and that the next move from the central bank very much depended on the next round of economic data and most importantly, on the next jobs report.
MarketWatch reported that Guy LeBas, chief fixed income strategist at Janney, had said in a note to clients, “Policymakers were broadly more bullish about the economic outlook in June than in April, though the Jul 2 jobs report might throw a little cold water on that opinion.”
The situation remains very much wait-and-see with more clarity on the Greek crisis due after the EU summit scheduled for Sunday. The longer term effects of Chinese government action to stabilize Chinese equity markets will also be closely watched by investors.