Last week’s Treasury bond market update
The Treasury yield curve shifted slightly downward during the last week despite positive releases such as the Bureau of Labor Statistics’ (or BLS) employment situation report. The report stated that the U.S. economy added 288,000 jobs in non-farm sector during April, much higher than consensus expectation of 215,000.
One reason for the relatively stable yield curve was the outcome of Federal Open Market Committee (or FOMC) meeting which happened on April 29-30.
FOMC stated that the Fed would keep the base rate between 0% and 0.25% for a “considerable period” after asset purchases end. Bond markets interpreted this as a signal that monetary tightening was not imminent, and low rates would stay in the near future leading to slight fall in yields. FOMC tapered its asset purchase program by another $10 billion, to $45 billion a month, as expected.
While most of the economic indicators released during the week showed overall improvement in the economy, the GDP growth for the first quarter of 2014 was disappointing at 0.1% hit by rough weather conditions during January and February. While economists expected the GDP growth to be considerably lower at 1.1% in the first quarter of 2014 compared to 2.6% in fourth quarter of 2013, the growth at 0.1% was much lower than the already sensitized figure of 1.1%.
The yields for long-term Treasuries (TLT) fell by 8 basis points while those of short-to-intermediate term notes (with maturity between three and ten years) (IEF) fell by one to eight basis points. The yields on Treasury bills (BIL) were relatively stable.