BOND REPORT: Treasury Yields Steady As Wall Street Braces For Inflation Cues From Jobs Report

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

U.S. Treasury yields were little changed on Friday as investors in government paper awaited a key employment report for signs of wage growth and inflation, whose absence has so far elevated prices and anchored yields.

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The yield on the benchmark 10-year Treasury note was up 0.4 basis point at 2.234%, while the yield on the two-year note was up 0.8 basis point at 1.351% and the 30-year bond was relatively flat at 2.809%.

Bond prices move inversely to yields.

Bond investors are bracing for Friday's closely watched nonfarm-payrolls report for July, scheduled for release at 8:30 a.m. Eastern Time.

Economists expect 180,000 jobs to have been added to the U.S. economy last month, while the unemployment rate is seen as falling to 4.3% from 4.4%, matching a 16-year low. Average hourly earnings are predicted to inch up, showing growth of 0.3% compared with 0.2% in June.

A combination of lackluster economic data and low inflation have been supportive of bond buying and has kept yields in check, even as the Federal Reserve has lifted benchmark interest-rates four times since December 2015. Because sluggish inflation can chip away at a bond's fixed value, lower inflation tends to encourage investors to scoop up Treasurys.

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Friday's jobs report will may offer the Fed more evidence of inflation and could make them less inclined to quickly lift interest rates as the central bank aims to normalize borrowing costs and reduce its $4.5 trillion asset portfolio, which could deliver an additional measure of tightening to monetary policy. Average hourly wages in the report is often viewed as the best proxy for the state of inflation.

Average hourly wage are expected to rise 0.3%, compared with 0.2% in June, based on average estimates (http://www.marketwatch.com/economy-politics/calendars/economic) of economists' polled by MarketWatch.

"I think if [average-hourly] wages comes in at 0.1% it will be a big disappointment," said Boris Schlossberg, managing director at BK Asset Management.

"That is going to be the key story because the market has been anticipating income to grow, and I think if we hit 0.1% we'll go back below 2.20% on the 10-year," he said.

A popular bond-focused exchange-traded fund, iShares 20+ Year Treasury Bond ETF (TLT), is down 0.3% in premarket trade, while the Dow Jones Industrial Average , extending its run in to record territory, and the S&P 500 index look set to rise at the open. Rising equities tend to imply that investors have an appetite for risk, which could result in bond yields, considered haven assets, rising.

Elsewhere, 10-year German bond yields , known as bunds, were at 0.45%.

(END) Dow Jones Newswires

August 04, 2017 08:13 ET (12:13 GMT)