By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rallied on Friday after a disappointing rise in July nonfarm payrolls, invigorating speculation about the timing and pace of a scale-back in the Federal Reserve’s monetary policies.
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The benchmark 10-year note 10_YEAR -3.40% yield, which moves inversely to price, fell 9 basis points on the day to 2.621% after sliding as low as 2.602%.
The 30-year bond 30_YEAR -1.65% yield fell 5.5 basis points to 3.705%, and the 5-year note 5_YEAR -7.58% yield fell 10 basis points to 1.391%.
Stocks started lower after the data, while gold prices rose, and the dollar index fell.
The report showed the U.S. created 162,000 jobs in July, while the unemployment rate dipped to 7.4% as labor-market participants dropped out.
The consensus projection of economists polled by MarketWatch was for 180,000 new jobs, with Wall Street experts ratcheting up their expectations as positive economic data came in during the run-up to the jobs report. ADP reported earlier in the week that the private-sector labor market had grown by 200,000.
“Unofficial expectations of a 200,000-plus nonfarm print have left the market sharply disappointed, leading Treasurys to retrace some of their recent selloff,” said Gennadiy Goldberg, U.S. strategist at TD Securities, in a note.
The jobs report also revised lower payroll numbers from May and June. Average hourly wages and average workweek fell, as did the civilian participation rate.
The disappointing payrolls number comes as the bond market speculates about the Fed’s plan to wind down its bond-purchase program, known as quantitative easing, later this year if data show continued economic improvement.
That has heightened the sensitivity of bond yields to any signs of labor-market improvement, pushing yields sharply higher for much of May and June and leading to a spike in Treasury yields Thursday.
“Job growth has definitely moderated in July compared to past months,” said Tanweer Akram, senior economist with ING U.S. Investment Management. He added: “Investors were a bit more optimistic, and that’s why rates have rallied since nonfarm payrolls.”
The Fed’s policy committee opted Wednesday to leave monetary policy unchanged while slightly downgrading its assessment of the economy, but market expectations the Fed will begin to taper its bond purchases in the fall have largely remained in place.
“The moderation is unlikely to prevent the FOMC from beginning tapering,” said Akram, who expects a wind-down in the program to commence between September and December of this year.
Ben Eisen is a MarketWatch reporter based in New York.
