Why are Treasury yields falling after the global bond rout?

US Treasury yields moved lower across the curve on Thursday as investors looked ahead to key US economic data for clues on growth, inflation and the Federal Reserve’s next steps following a sharp sell-off in global bond markets.

The benchmark 10-year Treasury yield fell more than 2 basis points to 4.7680%.

The 30-year Treasury yield dropped about 2 basis points to 5.2433%, while the policy-sensitive two-year yield was more than 2 basis points lower at 4.3609%.

The retreat came after the 10-year Treasury yield touched a multi-year high during Wednesday’s session as concerns over inflation and government debt continued to weigh on fixed-income markets.

Jobs data in focus

Investors are now turning their attention to Friday’s US nonfarm payrolls report and unemployment data for August.

Economists expect the report to show the US economy added 58,000 jobs during the month, while the unemployment rate is forecast to remain unchanged at 4.1%.

The data could provide a fresh indication of how much room the Federal Reserve has to adjust interest rates as markets assess the outlook for inflation and economic growth.

Before the jobs report, investors will receive the latest ISM services PMI on Thursday.

The monthly gauge of US services activity is expected to rise to 54.3 from 54.1 in July.

A stronger-than-expected reading could reinforce concerns that economic activity remains resilient enough to keep inflation pressures elevated.

A weaker figure could instead support expectations for easier monetary policy.

Global bond yields retreat

The move in US Treasuries followed a broader recovery in global government bonds after yields reached multi-year and, in some cases, multi-decade highs.

The 10-year UK gilt yield fell five basis points to 5.18% after touching its highest level since August 2007 earlier this week. Germany’s 10-year yield edged two basis points lower.

The sharp rise in global yields had been driven by a combination of inflation concerns, higher energy prices and worries over government borrowing.

The subsequent pullback suggests some investors are returning to bonds after the recent sell-off pushed yields to levels that offered more attractive income.

Oil remains a key inflation risk

Energy markets remain central to the bond-market outlook as investors assess the potential inflation impact of renewed tensions in the Middle East.

West Texas Intermediate crude for October delivery fell more than 0.5% in early trading but remained above $90 a barrel.

Brent crude, the global benchmark, was last down 0.6% at $95.07.

Oil prices surged earlier in the week as tensions involving the US and Iran intensified, adding to concerns that higher energy costs could prolong inflation and complicate the outlook for interest rates.

Markets have since taken some comfort from President Donald Trump’s comments that the latest escalation would not last “too long.”

The resulting decline in oil prices has helped ease some of the immediate pressure on inflation expectations and bond yields.

Still, with Brent remaining near $95 a barrel and Treasury yields well above levels seen earlier in the year, investors are likely to remain sensitive to incoming economic data and further developments in the Middle East.