The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 21.5 basis points at 4.305%, near its high for the year.
Bond prices move in the opposite direction of yields. "We’ve been saying for a little while that maybe yields have come in too far too soon and that a selloff in rates would make a lot of sense," said Lawrence Gillum, fixed income strategist for LPL Financial. "In the near term it’s hard to see that a recession will be imminent, but it increases the risk of a policy error if the Fed does have to go higher for longer." Job growth and wages are the chief concerns for the Fed in its attempt to lower inflation down to its 2% target rate after inflation surged to 40-year highs last year. Average hourly earnings rose 0.3% after gaining 0.4% in December, bringing the year-on-year increase in wages to 4.4% from 4.8% the month before.
"Even with stronger-than-expected headline numbers, we saw wage growth come down," said Sam Millette, fixed income strategist for Commonwealth Financial Network.
"There are some signs of a sort of Goldilocks scenario for the Fed here where they aren't seeing the large increase in unemployment that's associated with tighter monetary policy, but they are seeing wage growth starting to slow."
Investors are now pricing in a near-certainty that the Fed raises benchmark rates another 25 basis points in March, according to CME's FedWatch Tool. Markets had previously priced in a roughly 18% chance that the Fed had already concluded its rate hiking cycle before Friday's economic data was released.
Non-farm payrolls surged by 517,000 jobs last month, the Labor Department said. Economists polled by Reuters had forecast payrolls increasing 185,000 and wages advancing 4.3% year-on-year The unemployment rate fell to 3.4% from December's 3.5%.
The Institute for Supply Management (ISM) said on Friday its
non-manufacturing PMI increased to 55.2 last month, above the
50.4 reading expected by economists polled by Reuters. The index
dropped to 49.2 in December, falling below the 50 level, which
signals contraction, for the first time since May 2020.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes , seen as an indicator of economic
expectations, was at -78.0 basis points.
February 3 Friday 2:50PM New York / 1950 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.5425 4.6567 0.017
Six-month bills 4.67 4.8468 0.062
Two-year note 99-168/256 4.3073 0.217
Three-year note 99-192/256 3.9652 0.201
Five-year note 99-64/256 3.6659 0.183
Seven-year note 99-92/256 3.6045 0.164
10-year note 104-224/256 3.5302 0.132
20-year bond 103-76/256 3.7618 0.093
30-year bond 106-200/256 3.6255 0.070
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 26.50 -1.25
spread
U.S. 3-year dollar swap 15.75 0.50
spread
U.S. 5-year dollar swap 7.25 0.00
spread
U.S. 10-year dollar swap -1.00 -0.25
spread
U.S. 30-year dollar swap -36.50 -1.50
spread
(Reporting by David Randall; Editing by Arun Koyyur, Andrea
Ricci and Jonathan Oatis)
