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Bond Report: 10-year Treasury yield slides to lowest since March despite better-than-expected June jobs

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U.S. Treasury yields fell across the board Friday, with the 10-year hitting its lowest level since early March, even though the latest monthly update on the labor market showed that 850,000 new jobs were created in June as the economy perked up and companies rushed to add more workers.

On the short-end of the yield curve, the 2-year note saw its steepest weekly yield slump in about a year.

The market for Treasurys closed an hour early Friday, at 2 p.m. Eastern, and will remain closed on Monday in observance of U.S. Independence Day, or Fourth of July, which falls on a Sunday this year.

How Treasurys performed
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.436%

    was at 1.434%, bringing it to its lowest rate since March 2, compared with 1.479% on Thursday at 3 p.m. Eastern Time.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.045%

    rate was at 2.050%, versus 2.086% a day ago.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.243%

    was yielding 0.238%, compared with 0.255% on Thursday.

For the week

The 2-year Treasury note declined 3.2 basis points, to register the biggest weekly decline since July 31, 2020; the 10-year Treasury note fell 10.1 basis points for its steepest weekly drop since June 12, 2020. The 30-year bond fell 11.9 basis points for the week.

Fixed-income drivers

Treasury yields fell after the U.S. Labor Department said 850,000 jobs were created in June, more than the 706,000 job that were estimated by economists polled by Dow Jones and MarketWatch. The unemployment rate, however, rose to 5.9%, compared with 5.8% last month and an expectation for 5.6%.

The report showed that 662,000 private-sector jobs were added, which was 57,000 higher than forecasts, and the overall May jobs figures were raised slightly to 583,0000 from 559,000.

However, analysts noted that at the current pace of hiring it’s likely to take more than a year before employment returns to pre-Covid levels. Also, the labor-force participation rate, reflecting the share of able-bodied people 16 or older who were in the labor force, stood at 61.6% in June —the same as it was last October.

Investors are attuned to the data because it could help to determine the Federal Reserve’s approach to tapering monthly bond purchases, currently running at $120 billion.

Fed members already have been discussing the basis by which they would feel comfortable tapering asset purchases, known as quantitative easing, and raising policy interest rates, which currently stand at a range between 0% and 0.25%.

See: June jobs report bolsters case for Fed to start slowing down bond-buys this year

Focus on the health of the labor market has somewhat put in the back seat growing evidence of inflation popping higher in the aftermath of the COVID pandemic.

Bond markets may kept an eye on oil markets for further signs of inflation, as higher crude-oil prices
CL.1,
-0.05%

can sometimes boost consumer prices, at least in the shorter term. The Organization of the Petroleum Exporting Countries and its allies were awaiting an outcome of a meeting after a dispute emerged over plans to further ease production curbs through the end of the year.

Outside of the U.S. jobs data, a report on international trade in goods and services for May came in at $72.1 billion deficit, marking its highest ever level and slightly higher than the $71.2 billion expected, and greater than the $68.9 billion deficit in April. 

A reading on factory orders for May showed a 1.7% rise, after a revised 0.1% decline in the prior month, the Commerce Department said Friday, a little better than expectations. Factory orders have risen in 12 of the last 13 months.

What strategists said

“There were some holes though under the hood as the household survey saw a loss of 18k jobs and when combined with the 151k increase in the size of the labor force, the unemployment rate rose to 5.9% from 5.8% and vs the estimate of 5.6%,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.

“After losing 22.3mm jobs in March and April, we’ve since recovered 15.6mm of them back. It is not due to the lack of demand for more that still explains the wide gap but supply as we know. I don’t see anything in this report that should alter the need for the Fed to start cutting back on QE ASAP which does absolutely nothing to help economic growth,” Boockvar wrote.

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