Government Bonds Weaken After Jobs Report

By Gunjan Banerji Features Dow Jones Newswires

U.S. government bonds were little changed after the monthly jobs report showed that U.S. employers' hiring slowed down in December.

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The yield on the benchmark 10-year U.S. Treasury note rose to 2.454%, according to Tradeweb, from 2.452% on Thursday. Yields fall as bond prices rise.

The 10-year yield dropped as low as 2.438% after the jobs report indicated nonfarm payroll employment increased by 148,000 in December, less than what economists surveyed by The Wall Street Journal had expected.

A strong private employment figure released Thursday could've set investor expectations high for Friday morning's report, making it seem initially lackluster, said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Company International.

The 10-year yield recovered shortly after the report, with analysts saying the economic backdrop still appears strong, with the unemployment rate staying steady at 4.1% for the third consecutive month and at its lowest since late 2000. Wage growth, which investors watch as a sign of inflation, remained muted.

Inflation poses a threat to the value of long-term government bonds because it chips away at the purchasing power of their fixed payments.

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Treasury yields have risen in the first week of the new year, continuing a trend from late 2017 as major U.S. stock indexes have hit fresh milestones. The U.S. Treasury Department will auction $146 billion in bonds next week, adding new supply to the market.

Policy makers have penciled in three rate rises for 2018.

"I don't think this report, disappointing as it might look, will necessarily mean that [the Fed] will look to take three hikes down to two hikes," said Boris Rjavinski, director of rate strategy at Wells Fargo Securities. "We're still looking at more or less the same plan of action."

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

U.S. government bonds weakened after the monthly jobs report showed that U.S. employers' hiring slowed in December, while still signaling strength in the labor market.

The yield on the benchmark 10-year U.S. Treasury note rose to 2.476% from 2.452% on Thursday and 2.409% at the close of last week. Yields rise as bond prices fall.

The 10-year yield has climbed recently as U.S. stock indexes rose to fresh milestones, posting gains in four of the past six weeks.

On Friday, the 10-year yield dropped as low as 2.438% after the jobs report indicated employers added 148,000 jobs in December, less than what economists surveyed by The Wall Street Journal had expected. It recovered quickly, with analysts saying the U.S. economy still appears strong, with the unemployment rate staying steady at 4.1% for the third consecutive month and at its lowest level since late 2000.

Signs of an improving economy can threaten the value of government bonds, because faster growth can lead to higher inflation, which chips away at the purchasing power of the debt's fixed payments.

Some investors and analysts said the report didn't significantly change their picture of the U.S. job market or suggest the Federal Reserve might increase its pace of interest-rate increases. A robust private employment figure released Thursday also could have set investor expectations high for Friday morning's report, making it seem initially lackluster, said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Company International.

Policy makers have penciled in three rate rises for 2018.

"I don't think this report, disappointing as it might look, will necessarily mean that [the Fed] will look to take three hikes down to two hikes," said Boris Rjavinski, director of rate strategy at Wells Fargo Securities. "We're still looking at more or less the same plan of action."

The 10-year yield's recent climb also comes ahead of the U.S. Treasury Department's scheduled auction of $146 billion of bonds next week, adding new supply to the market.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

January 05, 2018 16:47 ET (21:47 GMT)