Treasury yields slumped on Friday as a weaker-than-expected nonfarm-payrolls number triggered a rally in prices of U.S. government paper, casting doubts on growth expectations for the U.S. economy.
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The yield on the 10-year Treasury note plummeted 6.1 basis points to 2.150%, the lowest since Nov. 10, erasing nearly all the gains seen since Donald Trump's presidential election victory. Bond prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.
The yield on the 2-year note , the most sensitive to interest-rate expectations, lost 1.6 basis point to 1.282%, while the yield on the 30-year Treasury bond fell 5.2 basis points to 2.810%.
Yields for long-dated U.S. government paper plummeted after the Bureau of Labor Statistics said the economy added 134,000 new jobs in May, falling short of the 185,000 expected by economists polled by MarketWatch. Investors said the weak reading was a reflection of the low unemployment rate, which fell from 4.4% to 4.3%, leaving the labor market at its tightest since 2001. Hourly earnings also gained 0.2%.
"While today's number disappointed, we cannot ignore the fact that labor market conditions are tight and finding available workers to fill positions is becoming more difficult," said Charles Ripley, investment strategist for Allianz Investment Management.
A gauge of economic health, a lukewarm jobs report could pare growth and inflation expectations, which can support the value of fixed-interest payments for bonds.
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See: U.S. jobs growth slows to 138,00 in May (http://www.marketwatch.com/story/us-adds-138000-jobs-in-may-unemployment-drops-to-16-year-low-of-43-2017-06-02)
Friday's reading came as a surprise after a better-than-expected showing from Automatic Data Processing Inc.'s(ADP) private-sector payrolls report on Thursday, which showed a jump to 253,000 in May, compared with (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01)174,000 in April (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01). However, the pair of labor reports don't always align and this month's numbers helped prove that disconnect, said economists.
But pressure on the 2-year note yield was limited, with a June rate increase by the Fed still expected, market strategists said. Senior central bank officials including San Francisco Fed President John Williams, a non-voter, have said in the past (http://www.marketwatch.com/story/us-can-add-as-few-as-50000-jobs-per-month-and-still-be-healthy-fed-study-finds-2016-10-24)they expected the pace of jobs growth to taper off.
"The 138,000 print on headline employment, while well shy of market expectations, is not inconsistent with where the Fed thinks trend payroll growth should be settling in right about now," said Tom Porcelli, chief U.S. economist for RBC Capital Markets, in a note.
Philadelphia Fed President Patrick Harker, a voting member of the interest-rate setting committee, declared the nonfarm-payrolls report a "good number" (http://www.marketwatch.com/story/job-market-is-strong-philadelphia-feds-harker-says-as-he-backs-rate-forecast-2017-06-02) on Friday, propping up the likelihood of a June rate increase.
Others said yields were pressured on a combination of concerns ranging from the fading prospects of Trump's pro-growth agenda to the growing possibility that the Fed could take a less aggressive path to tighten monetary policy.
"We've stayed firmly at these lower levels. There's more of a realization that the Fed is going to have a neutral monetary policy," said Mike Materasso, senior vice president and co-chair of Franklin Templeton's Fixed Income Policy Committee.
Moreover, the yield for the 10-year Treasury note broke below the 200-day moving average, a technical signal that could trigger further buying of the benchmark government bond.
"It's usually a very big number, the 200-day moving average is significant. It's something that market technicians look at. We've got through that, so we're probably going to get a lot lower in yields, but it probably won't come in all at once," said Tom di Galoma, head of Treasurys trading at Seaport Global Securities.
(END) Dow Jones Newswires
June 02, 2017 13:43 ET (17:43 GMT)