U.S. Government Bonds Fall as Traders Focus on Wage Gains -- Update

U.S. government bonds fell after Friday's jobs report showed wage gains and the economy's first job losses since 2010.

The yield on the benchmark 10-year Treasury note rose to 2.370% from 2.352% Thursday. The two-year note yield, which is more sensitive to expectations for Federal Reserve policy, rose to 1.511% from 1.495% Thursday. Both yields have risen for four consecutive weeks, the longest streak since December. Yields rise when prices fall.

Labor Department data showed the U.S. economy lost 33,000 jobs last month, the first monthly decline since September 2010, while the unemployment rate fell to 4.2%, a 16-year low, and average hourly earnings rose 2.9%. Traders focused on the wage gains, while attributing the decline in payrolls to the recent hurricanes that disrupted economic activity throughout much of the U.S.

The wage data was significant because "it's one of those things that people look at and say it's a bit inflationary," said Thomas di Galoma, head of Treasury trading at Seaport Global Holdings.

Yields pared their increase as traders focused on the potential for geopolitical unrest over the weekend. Catalonian lawmakers could consider whether to declare independence from Spain next week, while the Spanish government approved a decree Friday that would make it easier for companies to move their legal base out of Catalonia.

Investors have been looking for signs of inflation, as Fed officials have said that persistent low readings on price measures throughout the economy are the result of transitory factors. Fed Chairwoman Janet Yellen said in a speech last month that it would be "imprudent" for the central bank to wait for inflation to return to its 2% target before raising rates.

Inflation is a major threat to long-term government bonds because it erodes the purchasing power of their fixed payments and can push the Fed to raise interest rates.

Fed-funds futures, used by traders to place bets on central bank policy, showed a 88% chance of an interest-rate increase by December, up from 73% a week ago, according to CME Group.

Some analysts suggested the market may be making a mistake in emphasizing the wage data while discounting the job losses.

"The people who don't show up are hourly workers" who earn less than salaried employees, said Mike Bazdarich, senior economist at Western Asset Management. "You've got more executives and fewer working stiffs."

Yields were also pushed higher as traders anticipated three government debt auctions next week. The Treasury will sell securities maturing in three-, 10- and 30-years in a holiday-shortened week.

(END) Dow Jones Newswires

October 06, 2017 16:23 ET (20:23 GMT)