Treasuries outlook: yields jump after strong jobs report

US Treasury yields shot higher on Friday after data showed US nonfarm payrolls beat expectations and the jobless rate fell to a more than 6-1/2-year low in February, bolstering the view that the Federal Reserve will consider hiking rates in June. Nonfarm payrolls rose 295,000 last month after an increase of 239,000 in January, the Labour Department said. The decline in the unemployment rate to 5.5 percent from 5.7 percent in January took it to its lowest level since May 2008.
Economists polled by Reuters had forecast a 240,000 increase in payrolls after a previously reported 257,000 rise in January. They had expected the jobless rate to fall 0.1 percentage point to 5.6 percent. "The market is getting increasingly concerned and pricing in a June rate hike," said Robbert Van Batenburg, director of market strategy at Newedge in New York.
US 30-year Treasury yields posted their biggest daily rise since July 2013, while benchmark 10-year note yields posted their biggest rise since November 2013. Yields on maturities ranging between two and seven years had their biggest one-day rise in a month. US one-year Treasury bill yields hit 0.27 percent, their highest level in nearly four years. Yields on all maturities between two and 30 years hit their highest since late December.
Analysts said that while the jobs report increased the likelihood that the Fed would remove the word "patient" in describing its approach to rate hikes at its March 17-18 policy meeting and begin raising them from rock-bottom levels in June, softer average hourly earnings tempered the market reaction. Average hourly earnings rose 0.1 percent in February, down from a 0.5 percent increase in January and below economists' expectations for a 0.2 percent gain, according to a Reuters poll.
"The sell-off could have been worse had there been evidence of true inflation in the wages, but there was not," said Jonathan Lewis, chief investment officer at New York-based Samson Capital Advisors, on the sell-off in Treasuries prices, which move inversely to yields.
Benchmark 10-year Treasury notes were last down 1-4/32 in price to yield 2.24 percent, compared with a yield of 2.11 percent late Thursday. That yield was just below its session high of 2.26 percent. US 30-year Treasury bonds were last down 2-13/32 in price to yield 2.84 percent, from a yield of 2.71 percent late Thursday and near their session high of 2.87 percent.