MW: Treasury yields jump to one-month high after strong jobs report
Treasury yields climbed Friday to their highest level in a month after the Labor Department said that the U.S. generated 242,000 new jobs in February, beating economists’ expectations of 198,000 new jobs.
Continued strength in the labor market could keep the Federal Reserve on track to raise interest rates further this year, after December ushered in the first hike in nearly a decade.
Yet despite the big gain in new jobs, average hourly wages fell by 0.1%, weighing on inflation expectations.
The yield on the benchmark 10-year note TMUBMUSD10Y, +0.92% gained 3.4 basis points to 1.864%, its highest level since Feb. 3, according to Tradeweb. Treasury yields move in the opposite direction of prices, and one basis point is equal to one hundredth of a percentage point.
The yield on the two-year note TMUBMUSD02Y, +0.52% gained 1.3 basis points to 0.858%, its highest level since late January. The yield on the 30-year bond TMUBMUSD30Y, +0.88% known as the long bond, rose 2.9 basis points to 2.689%.
The increase in jobs last month is a sign the economy continues to chug along, analysts said, despite a rocky start to the year for stocks and fresh worries over whether a fragile global economy could undermine growth at home.
The report “assuaged those recession fears that had been looming over the market,” said Quincy Krosby, market strategist for Prudential Financial.
But at the same time, falling wage growth confirmed the market’s expectation that the Fed will hold off in raising interest rate in its March meeting, Krosby said.
Still, the situation is hard for investors to decipher. If wage growth turns around soon, and considering last week’s strong rebound in the inflation rate, the Fed could find itself “behind the proverbial curve and have to play catch-up” in raising interest rates, “something the market fears,” Krosby said.
Bottom line, Fed policy makers have “a tough challenge on their hands,” said Peter Boockvar, chief market analyst at The Lindsey Group, in emailed comments. They “are way behind the curve” in raising interest rates but also have to deal with “weakness in global economies, the 2%-ish growth in the U.S. and the tantrums markets have almost every time the Fed takes away accommodation.”
Another “disappointment within the data,” according to Boockvar, were the hours worked, which tumbled to the lowest level in two years. Meanwhile, U.S. exports fell in January for the fourth month in a row and hit the lowest level since mid-2011.
Investors are now their attention to a European Central Bank policy meeting next week, which might result in further easing. “The major central banks continue on divergent paths, with the U.S. moving toward further rate hikes while both the [Bank of Japan] and ECB look to continue with negative rates,” said Chris Gaffney, president of EverBank World Markets, in emailed comments.
This should be good for the dollar, according to Gaffney, while also leading Treasury yields to gradually creep up.
