By Sunny Oh
Treasury yields fell Friday after the nonfarm-payrolls report showed the U.S. economy had picked up less jobs than expected last month, but not far enough to cancel out gains for the week.
Government bond yields still ended higher for the week after Thursday’s ferocious bond-market selloff slammed traders caught holding bullish positions, a wager that yields would continue to fall beyond their roughly 1 percentage point drop since January.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.55% fell 1.7 basis points Friday to 1.552%, trimming back its weeklong rise to 4.9 basis points. The benchmark maturity staged its biggest weekly climb since July 12.
The 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -0.24% dropped 1.6 basis points to 1.528%, paring its weeklong rise to 2 basis points. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.35% fell 3.9 basis points to 2.021%, paring its weeklong rise to 5.3 basis points.
Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
Bond yields came off their intraday highs after a weaker-than-expected jobs report undercut the solid economic data from private-sector employers and the services industry on Thursday, which had assuaged some fears that the U.S. economy was on the brink of slipping into a recession.
The U.S. economy added 130,000 jobs in August, down from 164,000 in the previous month. Analysts polled by MarketWatch had forecast the U.S. to gain 170,000 jobs.
Still, economists pointed to other positives in the employment report. Average hourly earnings rose 0.4%, exceeding the consensus estimate for an 0.3% increase. Average hours worked each week rose by 0.1 to 34.4 hours.
Federal Reserve Chairman Jerome Powell, speaking at a conference in Zurich, said the U.S. economy was in a good place, appearing to push back against traders hopes for a rate cut yet this month. He pointed to the August jobs report to underline the central bank’s forecasts for a continued economic expansion.
Still, market expectations are for the U.S. central bank to cut rates by a quarter of a percentage point at the conclusion of its two-day policy meeting on Sept. 18.
Earlier in the week, senior Fed officials debated the need for an extended easing cycle given the U.S. economy’s resilience in the face of uncertainty of the trade war. A media blackout period, before the central bank’s decision, starts next week for Fed officials.
What did market participants’ say?
“It’s still a decent number. The jobs gains are in line with the view that the U.S. economy is moving to a 2% growth rate from a 3% growth rate,” said Lindsay Bernum, global macro analyst at Smith Capital Investors, in an interview with MarketWatch.
She said there were plenty of sources of economic optimism within the nonfarm-payrolls report, including the rising wage increases and the rise in average hours worked.
“When you’re this far into an expansionary period, you can see that we have a lot more mini cycles now. The moves are more extreme, and the day to day volatility goes up,” said Bernum.
“The headlines jobs number missed, but most people’s interpretations of the report is mostly positive. The participation rate continued to improve. It shows we’re still continuing to draw people into the labor market,” Peter Cramer, senior portfolio manager at SLC Management, told MarketWatch.
What else is on investors’ radar?
In Asia, the People’s Bank of China announced it would cut the level that banks are required to hold as bank reserves in proportion to deposits by half a percentage point in a bid to boost lending.
Bank of Japan Gov. Haruhiko Kuroda said long-end rates had fallen too far. His remarks sparked selling Japanese government bonds with extended maturities.
The 30-year Japanese government bond yield /zigman2/quotes/211347251/realtime BX:TMBMKJP-30Y +0.38% climbed 7.3 basis points to 0.209%.