US Treasury yields were little changed on Friday after dropping to multiweek lows, supported by US equity gains as investors believed a weaker-than-expected jobs report will not deter the Federal Reserve from raising interest rates at the June meeting. Yields on US benchmark 10-year Treasury notes and 30-year yields earlier slid to two-week lows after the jobs data, while those on two-year notes fell to a one-week trough.
Those gains subsequently reversed, except for 30-year bond yields, which were down on the day, but came off a two-week low. The Labor Department said US non-farm payrolls grew last month by 164,000, lower than market expectations for a rise of 192,000 jobs. Average earnings growth, a closely monitored inflation indicator, grew by just 0.1 percent in April after rising 0.3 percent the previous month.
"The data was not great, but I don't think anybody has changed his mind about what the Fed is going to do. The Fed will still continue to hike," said Tom Simons, money market economist at Jefferies in New York. "In the stock market, it looks like it has rejected any weak interpretation of the jobs data and that certainly helps the risk-on tone in the market," he added.
Analysts said investors also looked ahead to the Treasury's May refunding auctions next week, with $73 billion in debt on offer. On Wednesday, the Treasury department announced a higher supply of debt issue to offset the impact of a Fed that has been winding down its purchases. The new debt supply is also intended to finance a massive fiscal deficit as a result of President Donald Trump's tax cut scheme and increased spending program.
That should ensure rates will remain higher, analysts said. "Further concessions next week into the auctions, which begin Tuesday, could help at the margin, though higher rates really haven't brought in strong demand for some time now," said Action Economics in its blog. In late afternoon trading, US benchmark 10-year yields were flat at 2.945 percent from 2.946 percent late on Thursday.
US 30-year bonds, meanwhile, fell to 3.114 percent, from Thursday's 3.121 percent. US two-year yields though were up at 2.500 percent, from 2.484 percent on Thursday. The yield curve flattened again after the jobs report, with the spread between US 2-year and 10-year notes contracting to 43.90 basis points, the tightest in two weeks. The spread was last at 44.30 basis points. The flattening yield curve is being driven by doubts among investors that inflation will pick up in the long term.
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