U.S. Treasury yields added to their gains Friday morning after the monthly reading on employment from the Labor Department showed that the U.S. created 943,000 jobs last month, marking the biggest gain in nearly a year and producing a sign that the economy’s rebound might not be impeded by the delta strain of COVID-19.
What yields are doing
The 10-year Treasury note yield
was at 1.282%, compared with 1.217% at 3 p.m. Eastern Time on Thursday.
The 30-year bond yield
was at 1.932%, versus 1.862% a day ago.
The 2-year Treasury note
meanwhile, was yielding 0.208%, compared with 0.200% on Thursday.
For the week, the 10-year is up 4.3 basis points, however. The 30-year bond has seen its yield risen 3.6 basis points, while the 2-year Treasury note is up 1.2 basis points, based on last Friday’s levels.
What’s driving the market?
U.S. bond markets were seeing selling as investors weighed the monthly jobs report for July as, perhaps, raising the prospects for a more hawkish Federal Reserve.
The Labor Department report for July showed that the increase in hiring exceeded Wall Street’s estimate, after economists polled by The Wall Street Journal had forecast 845,000 new jobs.
The unemployment rate also fell to a pandemic low of 5.4% from 5.9% in June, surpassing estimates for a decline to 5.7%.
On top of that, the share of people either working or looking for work rose a tick to 61.7% last month. The so-called labor force participation rate has been depressed since last summer with millions of previously employed Americans still missing from the workplace.
Investors have been concerned about what has appeared to be a slower pace of improvement in employment which threatens to hold back the broader U.S. recovery, but economists have been predicting that more people will eventually return to work in the fall once schools reopen and extra federal benefits expire in September.
A reading on private-sector employment from payrolls processor ADP on Wednesday indicated that the U.S. added 330,000 jobs in July, about half the 653,000 estimated.
YIelds on long-dated bonds were heading lower in recent months, with the 10-year Treasury yield touching its lowest level since Feb. 10 at 1.1255% earlier in the week, but picked up sharply on Friday after the report.
The recent decline in global bond yields has precipitated concerns about a flatter yield curve, raising some concerns in financial markets about what it portends for the economic outlook.
Meanwhile, Federal Reserve Vice Chair Richard Clarida on Wednesday said the U.S. central bank could begin raising interest rates in 2023.
Clarida said that he sees the recent rise in inflation as “transitory”, but he added that the risks of higher inflation are greater than the risks of low inflation.
What are analysts saying?
“As a nuance of the strong print, given seasonality around school hiring, 2021 saw fewer layoffs in July than would be typical,” wrote BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a daily note.
“This translates to a more outsized boost to school hiring figures and helps account for the spread between headline and private payrolls,” he wrote.
“Immediately ahead of the release the Treasury market was marginally cheaper and steeper; albeit well within the range. Since the results, US rates have extended the selloff with 10-year yields as high as 1.275% and 30s touching 1.92%,” the BMO analysts wrote.