U.S. Government bonds mixed as markets digest September FOMC statement

The US Treasuries saw mixed performance Friday as markets continued to digest the September FOMC statement, coupled with relatively mixed economic data, highlighted by further improvement in jobless claims that came alongside weaker than expected existing home sales and leading economic indicators release.

The yield on the benchmark 10-year Treasury note fell 2 basis points to 1.61 percent, the yield on 5-year bond dipped 1-1/2 basis points to 1.159 percent and the yield on short-term 2-year note remained steady at 0.77 percent by 12:10 GMT.

The United States initial jobless claims for the week ending 17 September August decreased 8k to 252k, well below expectations for a 261k result, as compared to the unrevised 260k reading seen in the week prior. The 4-week average was reported at 258.5k, down from the unrevised 260.8k reading seen in the week prior. Meanwhile, continuing claims for week ending 10 September decreased to 2.113 million, versus the 2.149 million reading seen prior. The insured unemployment rate decreased to 1.5 percent, down from 1.6 percent.

Moreover, the FHFA House Price Index increased 0.5 percent m/m in July, versus the revised 0.3 percent m/m increase seen for June (previous 0.2 percent m/m). This comes in above market expectations for a 0.4 percent m/m result.

In addition, markets now look ahead to what should be a relatively quiet finish to the week, highlighted by Markit US manufacturing PMI data, looking ahead to a greater flow of data in the week ahead. Although markets are now being guided by a Fed only looking for one 25 basis points hike before year-end, we expect continued selling to materialize in the wake of stronger than expected data (particularly employment and consumer prices).

Should inflation readings begin to creep higher or at least in tune with FOMC forecasts, we continue to anticipate a lively debate within the FOMC (highlighted by 3 dissenting votes at the September meeting).

Meanwhile, the S&P 500 Futures traded 7 points higher at 2,163 by 12:10 GMT.