US Treasury prices gained on Friday as oil prices dropped, raising concerns about low inflation, and as uncertainty about next week's US presidential election enhanced the appeal of lower risk assets. Oil futures on Friday were on course for their biggest weekly percentage declines since January of just under 10 percent as signs of tensions resurfaced between Saudi Arabia and Iran that could scupper a key supply cut pact.
Low oil prices are seen as pulling down inflation, which complicates the ability of the Federal Reserve to increase interest rates even as the employment picture improves. "We have oil falling and that's keeping rate increases down," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. Bonds have also gained a safety bid this week as stocks slide amid election polls showing a tight race between Democrat Hillary Clinton and Republican Donald Trump.
The outcome of next week's election may derail the Fed from a rate hike if it destabilizes financial markets. Friday's bond rally overturned brief weakness after data showed that US employers maintained a strong pace of hiring in October and boosted wages for workers, which supported the case for a December interest rate increase. US benchmark 10-year notes rose 7/32 in price to yield 1.79 percent, after rising as high as 1.83 percent on the employment data.
Nonfarm payrolls increased by 161,000 jobs last month, the Labour Department said on Friday. August and September data was revised to show 44,000 more jobs created than previously reported. "Marginally this makes it more likely that the Fed will go (raise rates) in December," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. However, "the number was very close to the consensus, which helped the market not react too much."
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