US Treasuries climb on soft June payrolls data

US Treasury debt prices climbed on Friday after government jobs data indicated the labour market was softer than economists had forecast, leaving room for the Federal Reserve to stop raising interest rates.
News of strong growth in average hourly earnings in June, a sign of wage inflation, may have curbed the rally. But some traders said the market had shrugged this off as it was not a good indicator of price pressures.
"Average hourly earnings is not necessarily a good predictor of the underlying inflation," said Gary Pollack, principal and head of fixed-income trading and research for Deutsche Bank Private Banking in New York. "We do have a nice rally."
Benchmark 10-year notes rose 11/32 in price for a yield of 5.14 percent versus 5.18 percent before the jobs report and 5.19 percent late on Thursday. Bond yields and prices move inversely.
"The market is looking beyond the earnings growth today. It is looking for the economy to slow and for inflation to remain under control," said Pollack.
Inflation erodes the value of a bond over time and could also force the Federal Reserve to extend its interest rate hiking cycle, further weighing on bond prices.
June nonfarm payrolls rose by 121,000, below economists' median forecast for a rise of 185,000. But average hourly earnings rose by 0.5 percent, which investors took as a sign of potential inflationary pressure.
Two-year notes, which respond closely to expectations for Fed interest rate moves, were up 2/32 in price to yield 5.18 percent against 5.22 percent late on Thursday.
Earlier this week, an ADP National Employment Report showed a surprisingly high private sector payrolls gain for June, which had economists scrambling to revise higher their nonfarm payrolls forecasts. The bond market sold off strongly after the ADP report.
"The bond market moved up (on Friday) because it was primed for a much bigger payroll number which did not materialise, but the details of the report will be very troubling to inflation hawks at the Fed," said Pierre Ellis, senior economist at Decision Economics in New York.
Thirty-year bonds rose 20/32 in price to yield 5.18 percent, compared with 5.22 percent on Thursday, while five-year notes were 6/32 higher to yield 5.11 percent from 5.15 percent late on Thursday. Two-year notes added 2/32 for a yield of 5.18 percent.