Treasury yields hit fresh multiyear peaks on Friday, extending their weeklong ascent, after a key jobs report showed tightening labor markets were leading to wage gains—a bearish development for bond bulls.
The Bureau of Labor Statistics reported the U.S. had added 134,000 jobs in September, below the 168,000 jobs expected from economists polled by MarketWatch. July’s and August’s numbers were increased. The unemployment rate fell to 3.7%, its lowest level since 1969. While, the average hourly earnings rose 0.3%, after a stellar 0.4% gain the previous month.
The 10-year Treasury note yield TMUBMUSD10Y, +1.64% rose 3 basis points to a seven-year high of 3.227%, contributing to a weeklong climb of 17.1 basis points, its largest such rise since February. The 30-year bond yield TMUBMUSD30Y, +1.68% rose 4.2 basis points to 3.396%, extending its weeklong rise to 20 basis points, its biggest such climb since the week of President Donald Trump’s election.
The shorter-end of the bond market showed a more modest rise. The 2-year note yield TMUBMUSD02Y, +0.73% rose 0.8 basis point to 2.888%, its highest since 2008. The short-dated maturity posted a weeklong yield gain of 7 basis points. Bond prices move in the opposite direction of yields.
Yields began to run higher earlier in the week after better than expected economic data on Wednesday sent investors fleeing from U.S. government paper. Adding to the yield climb, the official jobs report showed an economy that was continuing to eke out higher wages, and won’t dissuade the Federal Reserve from raising rates at its current pace, with likely another increase in December.
“We see this as a continuation of steady march higher in the employment market, and nothing to stand way in the market. This is not going to change Powell’s view,“ said Matt Toms, chief investment officer of fixed income at Voya Investment Management.
Economist said the weaker than expected showing from September’s employment data, at least on a headline basis, could be due to effects of Hurricane Florence.
“In short, payrolls were a bit weaker than generally expected in September, but there has been a clear tendency for the September data to be underreported initially and revised up later. Florence appears to have caused some weakness as well,” wrote Jim O’ Sullivan, chief U.S. economist at High Frequency Economics.
In other data, the trade deficit for August widened to $53.2 billion. Trade concerns have diminished after the U.S. and Canada agreed to a revamp of the North American Free Trade Agreement, turning investor’s attention to tensions between Washington and Beijing. As the U.S. closes one front in its effort to revise trade deals across the world, investors cited the breakthrough for diminishing a source of geopolitical jitters and lifting demand for haven assets like government paper.
“You’ve had a narrowing of the trade conflicts towards China and that decreases the breadth of trade uncertainty and in our mind, it pushes the market to interpret the administration’s trade policy as more bark and less bite,” said Toms.
On the Fed front, San Francisco Fed President John Williams said there was plenty of room before higher rates would dent growth, in an interview with Bloomberg TV.Atlanta Fed President Raphael Bostic said he was surprised by the strength of recent economic data, and could demand a higher rate-increase path.
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