Bond Report: 10-year Treasury yield logs biggest fall since April and hits 7-week low after May jobs data

Rates for the 10-year and 30-year Treasurys on Friday registered the biggest slide in over 7 weeks, after a May jobs report that saw another smaller-than-expected rise in nonfarm payrolls.

How Treasurys are performing
  • The 10-year Treasury note yield

    was at 1.559%, down 6.5 basis points. Yields and bond prices move in opposite directions.
  • The yield on the 30-year Treasury
    known as the long bond, was at 2.239%, down 5.5 basis points.
  • The 2-year Treasury note

    was at 0.149%, versus 0.158% a day ago.

The 10-year and 30-year saw their biggest daily yield decline since April 15, according to Dow Jones Market Data. The decline for the benchmark 10-year brought to its lowest level since April 22, while the retreat for the long bond put rates at the lowest since May 6.

For the week, the 10-year shed 3.3 basis points, marking its third straight decline; meanwhile, the 30-year lost 3.2 and fell a for a third week. The 2-year Treasury note rose 0.6 basis point, representing its largest rate gain since May 14.

Fixed-income drivers

The U.S. economy added 559,000 new jobs in May, a further sign that widespread labor shortages are holding back an economic recovery. Economists surveyed by Dow Jones and The Wall Street Journal had produced a consensus forecast for a gain of 671,000. The unemployment rate slipped in May to a pandemic low of 5.8% from 6.1%, though economists say the reading likely understates the rate by a few percentage points.

The Wall Street consensus estimate was for a gain of 671,000 in May, based on a poll of economists by Dow Jones and The Wall Street Journal.

April payrolls were revised to show a rise of 278,000 versus an initial estimate of 266,000. Analysts last month had looked for a payrolls rise of around 1 million.

Meanwhile, an uptick in wage growth is likely to add to market participants’ focus on inflation and the Fed’s response to potentially out-of-control price rises. Average hourly wages saw a monthly rise of 0.5% in May.

A number of Fed members already stated that it may be time to start thinking about when it would be appropriate to scale back elements of the Fed’s easy-money policies put in place during the height of the pandemic.

Read nextWhy the bond market might not suffer another taper tantrum when the Fed signals it is ready to move

On Thursday, New York Fed President John Williams, however, said that it is too soon for the central bank to start slowing down its asset purchases. And Cleveland Fed President Loretta Mester, in a television interview, said the Fed wants to be “very deliberately patient” on policy decisions.

In other data, U.S. factory orders slipped 0.6% in April, breaking an 11-month streak of increases.

What analysts and traders say

While the May rise in payrolls was mildly disappointing, the rebound from the April reading was a positive, said Charlie Ripley, senior investment strategist at Allianz Investment Management, in a note.

But the rise in average hourly earnings may signal that slack in the labor market is smaller than the Fed’s original assessment, he said, adding that a drop in the labor-force participation rate to 61.6% suggests employers will need to pony up more incentives to fill a record number of job openings.

“Overall, today’s report does provide progress in the right direction, but it also raises uncertainty around the inflation debate with wage pressures beginning to creep into the labor market,” Ripley said, in emailed comments.

“Certainly, this is not the ‘million jobs per month’ that looked like the base case expectation for the late spring ahead of the April payrolls data, but it isn’t a disaster either,” said Thomas Simons, money-market economist at Jefferies, in a note.

“The data is consistent with other indicators of a labor shortage that was already previously well understood and that should abate somewhat as the enhanced unemployment benefits programs continue to expire throughout the summer,” he said.

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