U.S. government bonds steadied Friday after a two-day selloff, as the latest jobs data reaffirmed expectations that the Federal Reserve will raise interest rates next month even as it failed to produce the surge in economic optimism that some had anticipated.
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The yield on the benchmark 10-year Treasury note settled at 2.352%, compared with 2.354% Thursday and 2.282% the previous Friday.
Yields, which rise when bond prices fall, had been climbing since Wednesday when Federal Reserve officials issued a fairly upbeat policy statement, reaffirming expectations that the central bank will press on with its plan to raise interest rates despite a run of lackluster economic data.
Fed officials, in the statement, said tepid growth in the January to March period was "likely to be transitory." Some investors had been looking for the jobs report to help turn the page on the first quarter.
Instead, the data was generally greeted by bond investors as solid but unspectacular, with declining unemployment once again tempered by sluggish wage growth.
"The market was pretty well setup just in case the numbers were great across the board, and the only stellar number is the 4.4% unemployment rate," said Jim Vogel, interest-rates strategist at FTN Financial.
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The Fed, Mr. Vogel said, "has put so much emphasis on the potential for wage growth pressure" that it is difficult to focus on better aspects of the report.
Fed funds futures, used by investors to place bets on the Fed's interest-rate policy, showed 79% odds that the Fed will tighten policy at its June meeting, according to CME Group. That was unchanged from just before the jobs report was released and up from 68% a week ago.
The yield on the two-year note, which is especially sensitive to the Fed's policy outlook, settled at 1.318%, compared with 1.310% Thursday.
Investors typically reduce bondholdings in anticipation of tighter monetary policy because it tends to shrink the value of outstanding bonds.
Yields on longer-term Treasurys are still well below their highs from earlier this year, when the yield on the 10-year note briefly topped 2.6%.
Though confident that the Fed will continue to raise rates, investors expect the pace to remain slow. They have also grown increasingly skeptical that Congress will pass large-scale fiscal stimulus that could boost growth and inflation and push the Fed to be more aggressive.
One recent wild-card for bond yields has been the French presidential election, which will be decided on Sunday. After finishing first in last month's first-round vote, centrist candidate Emmanuel Macron is widely expected to prevail over far-right candidate Marine Le Pen, who has threatened to pull France out of the eurozone.
Though seemingly unlikely, an upset by Ms. Le Pen could lead to sharply lower bond yields as investors flock to safer assets. Mr. Macron leads Ms. Le Pen by around 20 percentage points in the latest opinion polls.
Write to Sam Goldfarb at firstname.lastname@example.org
(END) Dow Jones Newswires
May 05, 2017 16:13 ET (20:13 GMT)