Yields higher after firm jobs data clarifies Fed's path

NEW YORK: US Treasury yields rose Friday after a strong jobs report that was in line with goals the Federal Reserve has set to start unwinding stimulus. The yield on the benchmark 10-year note was up 8.7 basis points at 1.3036%, its highest of the day, as equity indexes closed at record highs.

Much of the rise in yields came after Labor Department statistics showed US job growth rose solidly in July amid demand for workers in the labor-intensive services industry.

Nonfarm payrolls increased by 943,000 jobs last month after rising 938,000 in June, the department said in its closely watched employment report.

The report could help sway doves at the Fed to reduce support for the economy trying to move past the COVID-19 pandemic, said Kevin Flanagan, head of fixed income strategy at WisdomTree Asset Management.

Treasury yields had already seemed poised to move higher, he said, and Friday's report "adds more fuel to the fire."

Fed Fund Futures, a widely-used security for hedging short-term interest rate risk, priced in a more than 90% chance of a 25-basis point tightening by January 2023, after the jobs data. That was higher than last week's level after the Fed's two-day meeting.

Traders foresaw an 82% chance that the Fed will hike rates by 25 basis points by December of next year, up from 78% after the Fed meeting last week.

Yields were already heading up after US Federal Reserve Vice Chair Richard Clarida suggested on Wednesday that conditions for hiking interest rates might be met as soon as late 2022, earlier than market expectations.

The 10-year yield, the world's most significant interest rate, touched 1.127% on Wednesday, its lowest since February and in line with steady declines that drove the note down from its high this year of 1.776% in April.

The yield on 10-year Treasury Inflation Protected Securities was -1.058%, above its record low of -1.216% earlier this week. The 10-year TIPS break-even inflation rate was at 2.366%, slightly higher than Thursday. A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 109 basis points, 7 basis points higher than Thursday's close.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up almost a basis point at 0.2103%.