Treasury yields rise after jobs report

Climbing Friday prolong the previous day’s rise, which caught many investors off guard. Just a day earlier, Federal Reserve Chairman Jerome Powell had increase in both stock and bond prices by saying that Fed officials were not actively considering future rate hikes by three-quarters of a percentage point.

The yield on the benchmark 10-year US Treasury note stood at 3.124%, up from 3.066% on Thursday, to its highest close since November 2018 and near its highest level in more than a decade.

The move comes after the Labor Department said the economy 428,000 jobs added in April, which was above analysts’ expectations for a raise of 400,000. Average hourly earnings rose just 0.3%, well below estimates for a 0.4% increase. However, March earnings were revised higher so that the year-over-year gain in April matched expectations for a 5.5% increase.

Bond investors analyzed measures of worker pay because salary increase considered an important long-term driver of overall inflation. Rapid increase in consumer prices has driving bond yields higher this year by raising expectations that the Fed will raise interest rates next year in an effort to control inflation.

“Investors are “not really convinced of anything at the moment,” said Jim Vogel, interest rate strategist at FHN Financial.

Initially, investors seized on some aspects of the jobs report that justified lower yields, such as the increase in monthly earnings, he said. They then found other aspects that justify higher productivity, including the decline labor force participation ratewhich some might consider added to inflationary pressure.

Bond yields are primarily determined by the average short-term interest rates investors expect over the life of the bond. As it stands, interest rate derivatives suggest investors expect the Fed’s benchmark interest rate to rise to nearly 3.5% next year from its current target range of between 0.75% and 1. %.

Some Treasuries rose on Friday. The yield on the two-year Treasury note was at 2.696%, unchanged for the week. That was down from 2.722% late Thursday and 2.834% on Wednesday just before Mr. Powell’s comments.

Some analysts say the divergence between short- and long-term yields reflects the different effects a series of less aggressive rate hikes will have on different types of bonds.

While short-term yields are extremely sensitive to the outlook for short-term rates, long-term yields can sometimes rise when it looks like the Fed will be more cautious in containing inflation.

Such an approach could mean that the Fed may need to raise interest rates higher in the long run if it allows inflation to stay fixed in the economy. At the same time, this approach could also reduce the likelihood of a recession and further rate cuts needed to revive the economy – providing another rationale for high long-term yields. than.

Daniela Mardarovici, co-head of multi-sector fixed income at Macquarie Asset Management, said the widening gap between short-term and long-term yields in just a few trading sessions should not be over-interpreted.

Still, she said, the general impression investors got from Mr. Powell on Wednesday was a “sense of hesitation” about how quickly the Fed would raise rates, and “that hesitation,” she said. “is something that seems to be priced in the market,” he added.

Write to Sam Goldfarb at [email protected]