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Bond Report: Treasury yields slip as investors await Friday jobs report

Yields for U.S. government debt mostly edged lower Friday morning, as investors watched for a closely followed monthly report on the state of American jobs, which comes as a new strain of coronavirus, omicron, has been buffeting investor sentiment and raising fresh questions about the pace of the global economic recovery from the pandemic.

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What are yields going?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.424%

    yields 1.431%, down slightly from 1.447% at 3 p.m. Eastern Time on Thursday. Yields fall as prices for Treasurys rise.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.631%

    yields 0.619%, holding steady compared with 0.619% a day ago.
  • The 30-year Treasury
    TMUBMUSD30Y,
    1.754%
    ,
    aka the long bond, was yielding 1.750%, down from 1.768% on Thursday.
  • For the week, the 10-year Treasury note is down 5.3 basis points, the 2-year note is up 10.1 basis points, while the long bond has down 8 basis points, based on last Friday’s 3 p.m. levels.
What’s driving the market?

The U.S. economy swings squarely into focus on Friday, with November nonfarm payrolls that are expected to show 573,000 new jobs created, up slightly from 531,000 the prior month, according to economists polled by The Wall Street Journal.

The report comes out at 8:30 a.m. Eastern Time, alongside the unemployment rate and average hourly earnings.

Numbers that are in line or exceed expectations could prompt a selloff in bonds, pushing yields higher, as Federal Reserve Chairman Jerome Powell and other members of the central bank’s rate-setting committee have suggested that a faster tapering of asset purchases could be warranted to combat rising inflation pressures.

Earlier this week, Powell surprised market participants by opening the door to speeding the tapering process when policy makers meet later this month. He also said he wanted to retire the word “transitory” when referring to inflation.

Next week, the Fed enters a media blackout period ahead of its Dec. 14-15 policy gathering, its last one of 2021.

On Thursday, the widely followed spread between 2- and 10-year rates shrank below 83 basis points, marking the narrowest since Jan. 4, according to Tradeweb data. Meanwhile, the gap between 5- and 30-year yields tightened to a level not seen since March 9, 2020. Such movements usually imply that investors hold a downbeat longer-term outlook for the economy.

Looking beyond jobs, investors will also watch for a November reading from IHS Markit’s purchasing managers index geared to the service sector at 9:45 a.m., ahead of the more closely watched services reading for the same month from the Institute for Supply Mangement that comes out at 10 a.m. A report on factory orders for October also will be released at the same time.

What strategists are saying
  • “Treasuries stabilized overnight and have found a modest bid as investors await this morning’s payrolls report,” wrote Ian Lyngen and Ben Jeffery, rate strategists at BMO Capital Markets, in Friday note. “Unlike in recent months, NFP is less likely to define the near-term path for US rates given Powell’s recent hawkish pivot. This isn’t to imply payrolls will be a nonevent; rather that the bar is high for the data to meaningfully shift expectations for the December 15 FOMC meeting.”

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