Average hourly earnings jump 0.5% in hurricane-distorted jobs report
Treasury prices continued a decline Friday, pushing yields higher amid a selloff fueled by data that showed a pickup in U.S. wage growth, suggesting tight labor markets may finally drive inflation higher and strengthen the Federal Reserve's intent to hike rates in December.
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What are Treasury yields doing?
The 2-year Treasury yield, sensitive to expectations for monetary policy, surged higher to 1.511% on the day, the highest since October 2008. Friday's action was responsible for the entire week's gains.
The 10-year Treasury yield was up 2 basis points to 2.370%, contributing to a five-day climb of 4 basis points. Meanwhile, the 30-year bond yield rose a basis point to 2.907%, helping to bookend a 5 basis weeklong gain. Bond prices move in the opposite direction of yields.
What drove markets this week?
The jobs report (http://www.marketwatch.com/story/us-employment-drops-33000-in-september-jobless-rate-42-2017-10-06)offered a mixed bag for traders, but it showed the tightest labor market in 17 years was beginning to translate into higher wages. Higher salaries can stoke inflationary pressures, affirming the Fed's adherence to the Phillips Curve, an economic theory which says lower unemployment should bubble up as inflation.
Investors say bigger pay packets have clinched a further rate increase this year. Traders in the fed fund futures market are pricing in a 87% chance of a quarter-percentage point rate increase in Dec. 13, data from CME Group shows (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
See:Traders focus on fatter paychecks, ignore payrolls drop in jobs report (http://www.marketwatch.com/story/why-financial-markets-focused-on-fatter-paychecks-ignored-payrolls-drop-in-jobs-report-2017-10-06)
Speculation over who will succeed Fed Chairwoman Janet Yellen, if she is not reappointed, has helped drive yields higher as investors feel other candidates (How%20Fed%20leadership%20uncertainty%20could%20make%20interest-rate%20volatility%20great%20again) would pursue a more aggressive path of monetary tightening. Higher interest rates can weigh on the value of government paper, but without higher inflation, long-dated Treasurys can prove resilient to the corrosive effects of tighter monetary policy.
Read: Fed wants to raise interest rates in December and September job losses won't stop it (http://www.marketwatch.com/story/fed-wants-to-raise-interest-rates-in-december-and-september-job-losses-wont-stop-it-2017-10-06)
What did market participants say?
"What the Fed will be really pleased about is that wage growth has been strong. It's pretty hard to see how the Fed won't hike in December now. The market is going to strongly welcome this and start pricing in at least two more rate increases next year in the hope that this wage growth feeds through to a pickup in inflation," said Luke Hickmore, investment director at Aberdeen Standard Investments.
What data is on investors' radar?
What did Fed speakers say?
(END) Dow Jones Newswires
October 06, 2017 16:08 ET (20:08 GMT)