BOND REPORT: 10-year Treasury Note Yield Posts Largest Weekly Gain In Almost 2 Months

Nonfarm payrolls grew by 211,00 in April

Treasury yields fell slightly Friday, but yields managed the biggest weekly climb in two months, as a solid labor-market report proved consistent with the Federal Reserve's updated policy statement on Wednesday, which reaffirmed traders expectations for future rate increases, pushing yields higher.

The 10-year note yield edged off 0.2 basis point to 2.363%, but the benchmark bond saw its weekly yield advance, 7 basis points, since the period ended March 10. Bond prices move inversely to yields.

The yield for the 2-year note budged up 0.8 basis point to 2.352%, and is up 4.8 basis points on the week, marking its biggest weekly rise since March 10. The 30-year bond, or the long bond, lost 0.9 basis point to 2.989%, but notched a 3.7 basis-point weekly climb.

Friday's trading centered on the Labor Department's nonfarm-payrolls report, which showed that 211,000 jobs were created in April from 98,000 in March (http://www.marketwatch.com/story/us-creates-98000-jobs-in-march-2017-04-07-81033623), exceeding forecasts. The unemployment rate also fell to 4.4%, the lowest since mid-2007 (http://www.marketwatch.com/story/the-real-unemployment-rate-is-lowest-since-the-recession-2017-05-05). But hourly earnings only grew by 0.3%, putting it on track for 2.5% over the past 12 months, a slowdown from its recent 2.9% peak in December.

Bond traders focus on the jobs report for signs of economic vitality and inflation. A strong payrolls and wage growth can stoke inflation expectations, which, in turn, can erode the value of bonds' fixed payments. But traders took the opportunity to "buy on the dip", or when yields were higher, in anticipation of the selloff, traders said.

"There have been a fair number of investors waiting on the sidelines to buy bonds at higher yields. They didn't really give yields much of a time to go up. There are a lot of investors in cash and cash-type securities, and as yields climb you'll see that cash put to work," said Sharon Stark, head of fixed-income strategies for Incapital.

See: The real unemployment rate is lowest since the recession (http://www.marketwatch.com/story/the-real-unemployment-rate-is-lowest-since-the-recession-2017-05-05)

Despite expectations that the Fed would increase rates in June, money managers took the chance to "capture as much yield as possible" when Treasury prices fell, she said. Interest-rate hikes can spur selling in bonds, pushing prices lower and yields higher.

Meanwhile, investors also digested a cluster of Fed speakers. Fed Vice chairman Stanley Fischer said the central bank's policy couldn't be rule-based (http://www.marketwatch.com/story/feds-fischer-says-central-bank-policy-cannot-be-rules-based-2017-05-05). Meanwhile, St. Louis Fed President James Bullard said he thought the central bank could shrink to $2 trillion from its current level at $4.5 trillion (http://www.marketwatch.com/story/fed-officials-say-balance-sheet-could-be-cut-in-half-to-2-trillion-2017-05-05). Reducing its balance sheet can also have the effect of tightening rates.

Looking ahead, traders will keep an eye on the French presidential election. Pundits expect the centrist candidate Emmanuel Macron, who favors staying in the EU, to defeat the euroskeptic Marine Le Pen by a wide margin. His victory could support assets perceived as risky by reducing a key source of geopolitical risk.

(END) Dow Jones Newswires

May 05, 2017 17:53 ET (21:53 GMT)