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Bond Report: 10-year Treasury note knocks on door of 1.6% in climb to 4-month high, even as jobs data comes in weak

Yields for long-dated U.S. government debt on Friday were holding at highs not seen since early June, and the 2-year Treasury touched a March 2020 high, as a selloff in bonds that commenced in late September proceeded apace.

A weaker-than-expected report from nonfarm-payrolls, however, may serve to calm yield moves in the short term.

What yields are doing

The 10-year Treasury note yield
TMUBMUSD10Y,
1.598%

was at 1.571%, compared with 1.570% at 3 p.m. Eastern Time on Thursday, which represented its highest rate since June 7.

The 2-year Treasury note yield
TMUBMUSD02Y,
0.313%

was at 0.294%, versus 0.307% a day ago, representing a 52-week high for the note and its highest since March 25, 2020.

The 30-year Treasury bond yields
TMUBMUSD30Y,
2.162%

2.142%, compared with 2.132% on Thursday, which was its highest rate since June 25, according to Dow Jones Market Data.

For the week, the 2-year yield has risen 5.4 basis points, while the benchmark 10-year Treasury has gained 11.8 basis points and the 30-year, or long bond, has advanced 10.3 basis points, FactSet data show.

What’s driving the market?

The September report from the Labor Department showed that 194,000 new jobs were created in the month, marking the second disappointing increase in a row, and suggesting a lack of labor could handicap an otherwise robust U.S. economic recovery.

Analysts were debating whether the weaker-than-expected report would delay the Federal Reserve’s plans. Economists polled by The Wall Street Journal had expected the U.S. added 500,000 new jobs on the month.

August job gains were raised to 366,000 from 235,000, government data showed.

And the report also showed the rate of unemployment fell to 4.8% from 5.2%, drifting to a pandemic low. Yet the official rate underestimates the true unemployment by a few percentage points, economists estimate.

Some analysts have said that a jobs tally on the lighter side of the ledger, however, may compel the Federal Reserve to announce in November plans to scale back pandemic-era stimulus, which has seen the central bank make monthly purchases of $120 billion in Treasurys and mortgage-backed securities.

The prospect of the Fed tapering its bond purchases has played a considerable part in the recent advance in bond yields but investors may also look to see how much wages have increased as an indicator of inflation.

U.S. average hourly earnings jumped 19 cents, or 0.6%, to $30.85, matching the 0.6% rise in the prior month and well above forecast for a rise to 0.4%. Higher wages reflects the willingness of companies to pay more when labor is scarce.

The labor market report comes as Washington delayed a federal default after a Senate voted late Thursday to raise the government’s debt ceiling into December. It is a brief reprieve as lawmakers must head back to the bargaining table before the end of the year.

What analysts are saying

“The good news, for markets, is that this weak report, combined with the extension of the debt ceiling deadline to shortly after the next Fed meeting, makes the Fed less likely to start the tapering process then,” said Brad McMillan, Chief Investment Officer for Commonwealth Financial Network.  “One of the principal market worries has been higher rates, and in this case the bad employment news could provide additional support for markets if the Fed does delay.”

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