BOND REPORT: 30-year Bond Yield Posts Biggest Weekly Drop Since July 2016

By Mark DeCambre, MarketWatch , Sunny Oh Features Dow Jones Newswires

The U.S. economy added 261,000 new jobs in October

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U.S. Treasury yields inched lower, but stayed in a tight range, on Friday after the employment report revealed sluggish wage growth, extending investors' protracted wait for a return to levels of inflation considered healthy.

But long-dated yields fell sharply over the week after the Treasury Department announced it wouldn't increase auction sizes this year, and President Donald Trump said he would nominate Fed Gov. Jerome Powell (http://www.marketwatch.com/story/imagining-life-under-a-jerome-powell-fed-2017-10-20) to replace Chairwoman Janet Yellen as the head of the Federal Reserve.

What are Treasury yields doing?

The yield for the 30-year bond, or the long bond, edged 0.7 basis point lower to 2.822%, contributing to a steep drop of 11.3 basis points this week, the largest weeklong drop since July 2016.

The yield on the 10-year Treasury note was mostly unchanged at 2.343%, but fell 8.3 basis points in the last five days. The 2-year note yield was up 1.6 basis points to 1.624%, and 2.4 basis points for the week.

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Bond prices move in the opposite direction of yields.

What is driving markets?

The U.S. Treasury Department during its quarterly refunding announcement didn't reference ultralong bonds, and said it would maintain the size of auctions for longer-term debt, extending relief to holders of 10-year and 30-year government paper. The department said it would increase the sale sizes in February for so-called coupon-bearing debt, which have maturities beyond a year.

On Thursday, House Republicans released details of a long-awaited Republican tax plan (http://www.marketwatch.com/story/heres-a-breakdown-of-how-the-new-house-tax-bill-impacts-business-taxes-2017-11-02), while Trump announced he had chosen Powell (http://www.marketwatch.com/story/text-of-powells-statement-on-being-named-fed-chairman-nominee-2017-11-02) as the next head of the U.S. central bank. Powell is considered a candidate whose measured approach to normalizing crisis-era monetary policy most closely aligns with Yellen, whose term as the leader of the Fed ends in February.

The U.S. economy added 261,000 new jobs in October, below consensus estimates of economists polled by MarketWatch for a gain of 325,000 jobs, while wages grew by a penny to $26.53 an hour. The rebound comes after a loss of 33,000 jobs in September, which itself was increased to a slight gain, as the impact of Hurricane Irma and Hurricane Harvey continued to muddle the jobs picture.

But analysts said the past two monthly readings were revised up by 90,000.

See: U.S. adds 261,000 jobs in October in hurricane-inflated gain (http://www.marketwatch.com/story/us-adds-261000-jobs-in-october-in-hurricane-inflated-gain-2017-11-03)

Read: Economists say jobs picture returning to normal after hurricane disruption (http://www.marketwatch.com/story/economists-say-jobs-picture-returning-to-normal-after-hurricane-disruption-2017-11-03)

What are strategists saying?

"On his fundamental economic views, Powell has been in line with the consensus FOMC thinking, with his speeches indicating that he's fully on board with themes of lower potential growth and lower neutral interest rates. As such, his leadership isn't likely to represent a structural shift in terms of the key views shaping the medium-term monetary policy outlook," wrote Morgan Stanley economists led by Ellen Zentner and Robert Rosener in a Thursday research report.

"The long-end continues to benefit from the delay in increased longer-term issuance and the lack of compelling evidence of firmer inflation on a sustained basis," wrote Ward McCarthy, chief financial economist at Jefferies.

What else was in focus?

What other assets were in focus?

The U.K. 10-year government bond yield was at 1.264%, versus 1.261% after the Bank of England on Thursday raised interest rates for the first time (http://www.marketwatch.com/story/boe-delivers-a-typical-dovish-hike-analysts-react-to-historic-uk-rate-rise-2017-11-02)in a decade, but signaled that policy makers still harbored some concerns about the U.K. economy and inflation as Britain renegotiates trade agreements after voting last year to exit from the European Union.

The yield on the 10-year German bond , known as the bund, was at 0.360%.

(END) Dow Jones Newswires

November 03, 2017 16:55 ET (20:55 GMT)