Treasurys Pull Back After Upbeat Manufacturing Report

By Sam GoldfarbFeaturesDow Jones Newswires

U.S. government bond yields bounced off 2017 lows on Friday as investors booked profits following a strong report on the U.S. manufacturing sector.

The yield on the benchmark 10-year Treasury note settled at 2.157%, compared with 2.122% Thursday, its lowest close since Nov. 10. Yields rise when bond prices fall.

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In a choppy day of trading, Treasury yields fell sharply after the latest monthly jobs report showed continued slow growth in workers' wages. That reaction, though, was influenced by confusion over whether wage data had been revised for previous months, and yields quickly recovered once investors determined the report wasn't as poor as initially feared, analysts said.

Later, yields rose further when the Institute for Supply Management said its index of factory activity reached a six-year high in August. They also got a lift from a report in The Washington Post that President Donald Trump is no longer demanding that an upcoming spending bill include funding for a border wall with Mexico -- a shift that analysts said could reduce the odds of a government shutdown that would be a boon to assets seen as safe stores of value.

Even with Friday's move, it was still a good week for Treasurys, with the 10-year yield settling below its 2.169% close the previous Friday.

Despite evidence that the economy is on solid footing, U.S. inflation remains comfortably below the Federal Reserve's 2% target. That has eased pressure on the central bank to raise interest rates and alleviated a major threat to bonds, which is of rising inflation chipping away at the purchasing power of their fixed payments.

Meanwhile, yields on some short-term Treasury debt have climbed in recent days as investors continue to pay close attention to debt ceiling discussions in Washington.

The yield on a Treasury bill due Oct. 5 was 1.259% Friday afternoon, compared with 1.119% Thursday and 1.063% Wednesday, according to Tradeweb. The higher yield, analysts said, reflects investors' concern that there is a small chance the U.S. government could temporarily fail to honor its obligations on debt that matures right after the government is expected to reach the limit of its current borrowing authority.

Mark Cabana, U.S. rates strategist at Bank of America Merrill Lynch, said the Oct. 5 bill has been especially hard hit because the Treasury Department announced Thursday that it would sell $20 billion in additional debt maturing on that date, which was a larger amount than many investors had expected. The auction is scheduled for 1 p.m. on Tuesday.

Because Oct. 5 is around when the government could breach the debt ceiling absent action from Congress, "many traditional bill holders will be viewing that auction with a degree of skepticism," Mr. Cabana said.

Write to Sam Goldfarb at

(END) Dow Jones Newswires

September 01, 2017 16:22 ET (20:22 GMT)