U.S. government bonds strengthened Friday as the latest jobs report showed soft wage growth for workers, bolstering the view that stubbornly weak inflation could cause the Federal Reserve to slow down the pace of its interest-rate increases.
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In recent trading, the yield on the 10-year Treasury note was 2.180%, according to Tradeweb, compared with 2.201% just before the report was released and 2.217% Thursday. Yields fall when bond prices rise.
Nonfarm payrolls rose by a seasonally adjusted 138,000 in May from the prior month, the Labor Department said Friday. That was below the 184,000 gain projected by economists surveyed by The Wall Street Journal.
Average hourly earnings for private-sector workers increased 0.2% from the previous month. That matched expectations, but wage growth in April was revised downward, ensuring that annualized gains remained stuck at 2.5%.
"It's hard to find anything positive in this report," said Jim Vogel, interest-rates strategist at FTN Financial. The bond market, he added, had been poised for "a bigger rally on a bad number than a selloff on a good number."
Many economists have been waiting for wages to rise at a faster pace, leading to higher prices for goods and services. That would be bad for bonds because inflation chips away at the fixed returns of bonds over time and could lead to higher interest rates, which is another big threat to outstanding government debt.
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Most investors still expect the Fed to raise rates at its next policy meeting on June 13-14, which would mark the third time it has tightened monetary policy in as many quarters. But there have been questions about what it will do next, with many investors skeptical that there will be another rate-increase by the end of the year.
A report Tuesday showed the Fed's preferred gauge of inflation remained stuck below the central bank's 2% target. The personal-consumption expenditures price index was 1.7% on an annualized basis in April, down from 1.9% in March. Excluding food and energy, the reading dropped to 1.5%, down from 1.6% in March.
Several Fed officials have they said they aren't too worried about the inflation data, attributing the declines to temporary factors. A couple, though, have expressed greater concern, suggesting it could be a sign of continued slack in the labor market.
The 10-year yield's lowest close this year was 2.177% on April 18. The yield climbed to 2.4% in early May but quickly declined again.
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(END) Dow Jones Newswires
June 02, 2017 09:40 ET (13:40 GMT)