BOND REPORT: 30-year Treasury Yield Notches Biggest Daily Jump In More Than A Month

10-year benchmark Treasury yield briefly fell through the 2.10% mark earlier this week, the lowest level since Nov. 10

Treasury prices ended lower on Friday, nudging yields up, after briefly rallying following a weaker-than-expected August jobs report.

Selling gathered steam after a U.S manufacturing sentiment gauge hit a six-year high.

But Friday's moves gave little direction to the week, as Treasury yields across the board returned close to where they had started on Monday. Geopolitical tensions in North Korea (http://www.marketwatch.com/story/un-security-council-condemns-north-korea-for-outrageous-actions-2017-08-29)and another soft inflation reading for July (http://www.marketwatch.com/story/consumer-spending-kicks-into-higher-gear-in-july-2017-08-31) were counteracted by investor concerns that Treasury yields were too low.

The yield on the benchmark 10-year Treasury yield rose 3.5 basis points to 2.157%, trimming the weeklong yield decline to 1.2 basis points. It has steadily risen since it briefly broke through the 2.10% mark on Tuesday, the lowest since Nov. 10 when President Donald Trump's election sparked selling in government paper.

The 30-year bond yield climbed 4.2 basis points to 2.767%, helping it to a slight 1.7 basis point increase in the past five days. While, The 2-year Treasury yield , more sensitive to prospects for central bank monetary policy, rose 1.6 basis point to 1.345%, but was only up shy of a basis point for the week.

The Bureau of Labor Statistics reported that the U.S. produced 156,000 new jobs in August (http://www.marketwatch.com/story/us-gains-156000-jobs-in-august-but-unemployment-rate-edges-up-to-44-2017-09-01), coming in below the 170,000 predicted by economists polled by MarketWatch. The unemployment rate rose to 4.4% from 4.3%. Hourly pay increased 2.5% from August 2016 to August 2017, but was unchanged from the prior month, the government said on Friday.

See: Fake news? Why U.S. job creation in August was probably better than it looked (http://www.marketwatch.com/story/fake-news-why-us-job-creation-in-august-was-probably-better-than-it-looked-2017-09-01)

Treasury prices initially rose after the jobs report, with bond yields, which move in the opposite direction of prices, dipping on early Friday trade. The yield for the 10-year benchmark note fell close to the 2.10%, the psychologically significant level last seen Nov. 10 before it made an about-turn.

Analysts suggested traders took advantage of the rally in Treasurys to get rid of their holdings of government paper. An investors' survey conducted by BMO Capital Markets indicated 47% of those polled would sell after any bond-buying seen in the immediate wake of the jobs report. The survey was the most bearish since mid-2011, with 69% of the poll's participants forecasting yields to head higher.

A reading of manufacturing activity in August climbed to 58.8% from 56.3% in July (http://www.marketwatch.com/story/ism-manufacturing-index-jumps-to-six-year-high-in-august-2017-09-01), the highest since April 2011, helping to add to Treasury selling. Any reading above 50% indicates improving conditions.

Friday's shaky employment data come amid Hurricane Harvey, which has dealt a blow to the country's refining capabilities and could influence the number of new jobs added next month in part because Texas is the second-largest regional economy in the U.S. Joel Myers, founder of AccuWeather, estimated the final bill for the damages would come to $190 billion (http://www.marketwatch.com/story/hurricane-harvey-could-cost-190-billion-be-worst-ever-us-natural-disaster-says-accuweather-2017-08-31). This month's jobs numbers were collected before the hurricane made landfall.

"The employment report would not have the same impact [on the market] as we had before with Harvey going on," said Bryce Doty, senior fixed-income manager for SIT Investment Associates. "It won't make one iota of difference for the [Fed's] Sept. 20 meeting."

He said the Fed is still intent on winding down the balance sheet, and expects it to begin the process at the September meeting of the Federal Open Market Committee. Some traders said the hurricane could even exert pressure on the central bank to delay normalizing interest rates.

"Harvey will have [a] huge dovish effect on FOMC policy decisions going forward," said Tom di Galoma, managing director of Treasurys trading, at Seaport Global Securities.

The economists said the Fed is likely to look through the damage caused by Hurricane Harvey because they focus more on the 12-18 month horizon.

Also read: Fed expected to hike interest rates in December after jobs report (http://www.marketwatch.com/story/december-rate-hike-still-expected-by-economists-if-not-market-after-jobs-report-2017-09-01)

Looking ahead for next week, traders will have their hands busy with $56 billion worth of Treasury auctions and a schedule packed with Fed speakers, with five voting members of the FOMC slated to give speeches. In addition, the following Thursday's jobless claims report will be the first piece of economic data to show the impact from Hurricane Harvey.

Elsewhere, European bonds faced selling pressure after European Central Bank official Ewald Nowotny, a member of its policy-setting committee, played down the strength in the euro, and suggested it wouldn't hinder the ECB's decision making when it decides to gradually pull out of its asset-purchasing program, according to Reuters (http://www.reuters.com/article/eurozone-bonds/update-1-euro-zone-yields-rise-as-ecbs-nowotny-plays-down-euro-effect-idUSL8N1LI22U).

The 10-year German government bond yield rose 2 basis points to 0.379%.

The eurotemporarily topped $1.20 on Tuesday (http://www.marketwatch.com/story/heres-whats-driving-a-resurgent-euro-rally-2017-08-28), its highest level since early 2015, drawing concerns that the deflationary impact of a strengthening currency could slow the ECB's plans to scale down its monetary stimulus.

(END) Dow Jones Newswires

September 01, 2017 16:57 ET (20:57 GMT)