NEW YORK: US Treasury yields rose to two-week highs on Friday after data showed the world’s largest economy created more jobs than expected last month, putting the Federal Reserve on track to raise interest rates by half a percentage point a few more times this year.
US yields from one-year notes to 30-year bonds all climbed to two-week peaks in the wake of the better-than-expected nonfarm payrolls report.
Data showed US nonfarm payrolls increased by 390,000 jobs in May, while April numbers were revised up to show an increase of 436,000 jobs instead of 428,000 as previously estimated.
Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs last month. Estimates ranged between 250,000 and 477,000 jobs added.
Overall, the jobs report “doesn’t really change the...narrative for the Fed,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York. “We are still looking for 50 basis-point rate hikes in June and July, with a good chance of another 50 basis-point move in September.”
He said that with the blackout period approaching ahead of the Fed’s next policy meeting on June 15 “anything that comes out today in terms of Fedspeak, will help define the official outlook for June’s meeting.” The payrolls data also showed average hourly earnings rose 0.3%, less than forecast, causing the year-on-year growth to slow to 5.2%. Jefferies, pointed out, however, that wages for production and non-supervisory positions rose 0.6%.
“So, it looks like there is still good strength in wages for your ‘front-line” workers, while weakness in managerial and white collar wages is obfuscating this strength,” said Jefferies analysts Aneta Markowska and Thomas Simons. “The headline number may suggest a softening in the competition for labor, but looking under the hood, the evidence is still there,” they said.
The yield curve steepened with the spread between US two-year and 10-year yields widening to 29.8 basis points.
In late morning trading, the US benchmark 10-year yield rose 2.4 bps to 2.9387%, after earlier hitting a two-week high of 2.986%.
US 30-year yields were up 3.6 bps at 3.1102%. Earlier, they touched a two-week peak of 3.158%.
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