Yields for U.S. government debt edged higher on Friday as bond traders focused on bright spots in August’s otherwise dismal jobs report, showing just 235,000 new jobs were gained.

The 10- and 30-year yields had their biggest two-week rise in months, with many expecting the Federal Reserve to still announce a reduction in bond purchases this year.

What yields are doing

The 10-year Treasury note
TMUBMUSD10Y,
1.326%

yields 1.322%, versus 1.293% on Thursday at 3 p.m. Eastern Time.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.946%

was at 1.942%, compared with 1.906% a day ago.

The 2-year Treasury note
TMUBMUSD02Y,
0.208%

was yielding 0.206%, down from 0.212% on Thursday.

For the week, the 10-year was up 1.1 basis points and the 30-year Treasury was higher by 2.5 basis points. The 10- and 30-year yields posted their largest two-week rises since June and March, respectively, according to FactSet data based on the last Friday’s close at 3 p.m. The 2-year yield was down almost 1 basis point on the week, and had its largest two-week drop since July.

What’s driving the market?

The U.S. August nonfarm payrolls report showed that the number of new jobs created fell well short of economists’ forecast for a 720,000 increase.

Even so, traders focused on silver linings behind the data: The unemployment rate dropped to 5.2% from 5.4%, and broader measures of labor market slack also fell — both of which hit the lowest readings since March 2020, when the pandemic began in the U.S. 

The report was broadly seen as keeping the central bank on course to announcing a tapering of $120 billion in monthly bond purchases in 2021, even if a September announcement is still a matter for debate, analysts said.

The data release — which offered the first look at how well the economy has performed in the face of the spreading coronavirus delta variant — took on greater significance last week, when Federal Reserve Chairman Jerome Powell reinforced the central bank’s intention to start winding down its bond-buying program this year as inflation continues to run high.

Also:Inflation in the U.S. is running at the highest level in 30 years

On Thursday, a report on weekly U.S. jobless benefit claims fell to a new pandemic low of 340,000 despite delta’s surge.

What analysts are saying

“The latest US jobs data is disappointing to say the least,” Hinesh Patel, portfolio manager at Quilter Investors, wrote in a note. “While this is a big miss, markets need to remember it is just one data point and if anything vindicates the Federal Reserve’s wait and see approach. We should still expect tapering to commence later this year.”

“Despite the weaker than expected data, I don’t think this changes much for the Fed and their plans for tapering and still think they can make an announcement to begin tapering later this month,” said David Petrosinelli, senior trader at InspereX.  “Even though the topline number missed significantly, the overall economy is healthy and recovering steadily.  Recent inflation prints are more troublesome in my view and I think present a tougher challenge than the labor market recovery.”

“A dismal headline for payrolls is sprinkled with silver linings,” said Ben Emons, head of global macro strategy at New York-based Medley Global Advisors. “The bond market reaction is therefore ‘bullish.’ Long-term rates are up because there was not a major detraction in jobs but rather, the labor force is expanding and that signals the coming surge in labor supply is under way.”

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