By Sunny Oh
The 10-year Treasury yield touched the highest level in over a year Friday, though it retreated from its loftiest levels of the day, after the monthly Labor Department report for February showed bigger-than-expected job gains.
Yields for long-term Treasury notes and bonds booked large weekly increases as investors bet that inflationary pressures could prompt the Federal Reserve to tighten policy earlier than initial projections.
What are Treasurys doing?
The 10-year Treasury note yield (XTUP:BX:TMUBMUSD10Y) added 0.4 basis point at 1.551%, after rising as high as 1.62%. The benchmark maturity climbed 9.2 basis points this week, booking its fifth weekly yield increase and its five-week advance the period ending Dec. 16, 2016.
The 2-year note rate (XTUP:BX:TMUBMUSD02Y) was steady at 0.141%, and virtually flat for the week, while the 30-year bond yield (XTUP:BX:TMUBMUSD30Y) fell 2.1 basis points to 2.286%, trimming its weekly increase to 2.286%, but still managing to post five consecutive weeks of yield gains and producing the sharpest such stretch of rate gains since around 2016.
What’s driving Treasurys?
Investors closely eyed the Labor Department’s nonfarm payrolls report, which showed the U.S. economy added 379,000 jobs in February, above the forecast of 210,000. The unemployment rate fell slightly to 6.2%.
The report was expected to give encouragement to traders betting on reflation but that notion cooled somewhat on Friday, even as an improving economy is likely to add to inflationary pressures, a corrosive force of bond-market returns.
Trading in Friday action, reflected a fixed-income market that was struggling to find its footing after Fed Chairman Jerome Powell declined to say on Thursday if he would push back against the recent rise in long-term bond yields, though he would continue to monitor the rise in yields if they resulted in tighter financial conditions.
Other major central bankers also offered remarks with Bank of Japan Gov. Haruhiko Kuroda said he would not widen the band for the country’s long-term borrowing rate, a move that would have allowed yields to rise.
The 10-year Japanese government bond yield (XTUP:BX:TMBMKJP-10Y) fell 4.4 basis points to 0.092%.
What did market participants say?
“We’ve got yields continuing to make cycle highs. The reflation trade is in full force right now with a labor market showing some strength,” said Tony Bedikian, head of global markets at Citizens Bank, in an interview.
“This was a smash hit payroll number today, almost double expectations. One number doesn’t necessarily make a trend, it’s representative of the economy opening up and the vaccine starting to make a big impact,” said Bedikian.