U.S. Government bonds nearly flat in thin trading

The U.S. Treasuries traded nearly flat during a relatively quiet Friday session that witnessed data of little significance. The yield on the benchmark 10-year Treasury note stood flat at 2.47 percent, the super-long 30-year bond yield hovered around 3.08 percent and the yield on short-term 2-year note remained steady at 1.22 percent by 10:30 GMT.

Markets now look ahead to a relatively quiet session to finish off the week, marked solely by the release of Chicago PMI data, with greater focusing shifting to the December employment report next Friday.

We expect Treasuries will continue to drift lower in the coming weeks as markets look to assess the relative strength of data as we move into 2017, something that could yield a slightly more aggressive Fed than was laid out by the updated FOMC forecasts in December (already looking for 75 basis points of tightening over the course of the year).

Initial jobless claims in the United States declined modestly during the latest week ended December 24, cementing hopes of a further interest rate hike by the Federal Reserve. Also, Fed Chair Janet Yellen’s hawkish tone at the latest Dec 14 monetary policy meeting will get a boost following this data.

The U.S. initial jobless claims declined to 265,000 in the latest week ending December 24th from 275,000 previously and lower than market expectations of 277,000, data released by the U.S. Department of Labor showed Thursday.

Also, the goods trade deficit in the United States slightly widened during the month of November, deeper than what markets had initially anticipated. Sluggishness in imports of capital and consumer goods remains a concern, given their importance in informing the strength of both business investment spending and private consumption.

The U.S. November advance trade in goods report showed a modest widening in the deficit to USD65.3 billion in the month, versus USD61.9 billion in October. The widening is more pronounced when viewed against August (USD59.0 billion) and September (USD56.0 billion) data, figures released by the Bureau of Economic Analysis showed Thursday.

Lastly, we foresee that Treasury prices will keep drifting between small gains and losses in quiet trading session. Also, trading activity will resume after New Year celebrations, probably from the second week of January, 2017 as global market receives no more important data till then.

Meanwhile, the S&P 500 Futures traded 4.50 points higher at 2,250 by 10:40 GMT. While at 10:00 GMT, the FxWirePro's Hourly Dollar Strength Index remained highly bearish at -166.60 (lower than -75 represents a bearish trend).