US Treasury debt prices rose on Friday with benchmark yields falling to their lowest in 5-1/2 weeks as a surprisingly weak US jobs report for September reduced economists' expectations that the Federal Reserve will raise interest rates this year. Treasuries prices reached session highs after the US Labour Department said US employers hired 142,000 people last month, far below the 203,000 forecasters had expected, while August job gains were revised lower to show only 136,000 were added.
The report may lead to a change of view among some Fed policymakers, including Fed Chair Janet Yellen, who have said the US central bank would end its near-zero interest rate policy if the economy shows further improvement. The payrolls report also showed hourly wage growth stalled, undermining some Fed officials' outlook for inflation to pick up in the coming months.
"The Fed has lost the thread of things because if wages can't grow at a reasonable rate after so many years of Fed balancing then what hope do they have during a tightening regime?" said Lou Brien, market strategist at DRW Trading in Chicago. Interest rate futures implied traders scaled back their bets on a rate increase by year-end. They now see such a move in March 2016 at the earliest. The poor jobs market reading also led traders to expect that once the Fed raised rates, it would do so very gradually. This spurred a flood of buying in medium-term Treasuries, sending the five-year yield to its lowest in seven months at 1.213 percent.
"We don't think rates need to go up a lot and it's not like today's data is going to make the Fed move its decision by an entire year," said John Bredemus, vice president of Allianz Investment Management-US, based in Minneapolis. Treasury prices pared their earlier gains, as demand for government debt eased, with Wall Street staging a late rally led by energy stocks. Benchmark 10-year Treasuries notes were up 16/32 in price to yield 1.985 percent, down 6 basis points from late Thursday. At one point, they were up more than 1 point with a yield of 1.904 percent. The 30-year bond was up 19/32 in price to yield 2.822 percent, down 3 basis points on the day. It was up more than 2 points earlier with a yield of 2.749 percent.
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