MW: Treasury yields rise to session highs on jobs data
Expectations for Fed stimulus still alive
By Regina Hing, MarketWatch
NEW YORK (MarketWatch) — Treasury yields rose to session highs on Friday following a jobs report that surprised to the upside and triggered a selloff in safe-haven assets.
“Today we’re seeing a risk-on day on the strength of the employment report, even as the markets hope the Federal Reserve will take more action on policy,” said Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s private-wealth-management unit in New York.
Yields on 10-year notes 10_YEAR +7.23% , which move inversely to prices, rose 10 basis points to 1.58%, hitting 4-week highs. Yields on the benchmark note were at 1.52% before the Bureau of Labor Statistics reported July nonfarm-payrolls data.
A basis point is one one-hundredth of a percentage point.
Yields on 5-year debt 5_YEAR +9.55% rose 6 basis points to 0.67%.
Thirty-year-bond yields 30_YEAR +4.66% climbed 11 basis points to 2.67%, also hitting the highest spot in four weeks.
The U.S. economy added 163,000 jobs in July, beating economists’ projections of a 100,000 increase, but the unemployment rate climbed to 8.3% from June’s 8.2%. Read more on the July jobs report.
“This strength ... confirmed that while not growing as fast as some would like, the U.S. is not falling off a cliff either, and thus there is no need for more stimulus at this time,” CMC Markets analyst Colin Cieszynski said in a note to clients.
Service sector reassures
Also reassuring investors that the world’s largest economy is still chugging along were data on services-sector activity. The Institute for Supply Management said its manufacturing index ticked up to 52.6%, ahead of consensus estimates for a 52% increase in July. Read more on services-sector growth.
On Wednesday, the Federal Reserve said it stood ready to act if the economy deteriorated further and reiterated that it would keep in place the current policy stance emphasizing ”exceptionally low” interest rates through 2014.
Analysts say that out of all economic indicators, only a weak jobs report would have forced the U.S. central bank into embarking on another asset-purchase program. But they caution that a better-than-expected reading is no guarantee that the economy no longer needs a hand.
“I think [the Fed] will wait to see another jobs report before they decide,” said Pollack. He noted that while the pace of hiring picked up, certain areas of employment activity — in particular, average hours worked and average hourly earnings — remained feeble.
“I look at this report with a little bit of a grain of salt. I don’t think the Fed will want to increase their balance sheet any more than they have, but I think they might eventually have to,” Pollack said.
Regina Hing is a MarketWatch reporter, based in New York.
