Increased March Rate Hike Expectations Drive Treasurys Lower

Today’s trading activity in Treasurys and the US dollar followed the recent trend for increased belief that the Fed will decide to bump interest rates at their meeting in two weeks.  As the probability for a March rate hike topped 90%, Treasury yields/swaps rates increased another 1-4 basis points across the curve, bringing the yield on the 10-year note up to 2.48%.  Fed funds futures activity reached a record high today as markets tried to keep pace with the expectation for monetary tightening.  The US dollar gained for the fifth consecutive day, adding 0.5% against major currencies, after the Japanese yen fell another 0.6% in value while the Canadian dollar declined 0.5%.  Stocks gave back a portion of yesterday’s extensive advances, with all three major US stock indices finished 0.5%-0.75% lower on the day.    

New economic data was light today, albeit we did have the release of the weekly Labor Department jobless claims report.  The number of Americans applying for unemployment benefits for the first time last week totaled 223,000 (245,000 expected), the fewest since March 1973.  The weekly decline was the steepest of the year, falling 19,000 from the prior week’s revised level.  Also declining was the less volatile four-week moving average, which decreased to 234,250, a 44-year low.  Continuing claims were little changed, rising a modest 3,000 to 2.07 million.  Overall, the robust labor data offers an optimistic backdrop ahead of next Friday’s monthly payroll figures, which stand to be one of the final critical data points heading into this month’s FOMC meeting.