By Karen Brettell
NEW YORK, Feb 7 (Reuters) - Benchmark 10-year Treasury
yields were at four-week highs as investors waited to see
whether Federal Reserve Chairman Jerome Powell will strike a
more hawkish tone when he speaks later on Tuesday, following
unexpectedly strong jobs data last week.
Investors interpreted Powell as taking a more dovish
approach to further rate increases after the Fed concluded its
two-day meeting on Wednesday as he pushed back against loosening
financial conditions being an issue for Fed policy and talked up
progress in bringing down price pressures.
But traders repriced for more rate hikes, and fewer cuts
later this year, after data on Friday showed that employers
added 517,000 jobs in January, far more than economists had
expected, while the unemployment rate hit 3.4%, its lowest
reading in more than 53 years.
“There’s been a tendency through much of the last year for
Fed speakers to amplify the last data point, which in this case
of course was the strong nonfarm payrolls print on Friday,” said
Guy LeBas, chief fixed income strategist at Janney Montgomery
Scott in Philadelphia.
“So, in contrast to the tone that was struck at the FOMC
press conference last week, he might be a little bit more
cautious specifically about the risk of strong labor markets
feeding back into another resurgence of inflation,” LeBas said.
Average hourly earnings increased 0.3% last month after
gaining 0.4% in December. That lowered the year-on-year increase
in wages to 4.4%, the smallest rise since August 2021, from 4.8%
in December. But wage growth was revised upward for 2022,
suggesting a more moderate pace of cooling than previously
thought.
Minneapolis Fed President Neel Kashkari said on Tuesday that
the Fed will probably have to raise interest rates to at least
5.4% in order to tame high inflation with January job gains
showing policy actions so far have done little to dent the labor
market.
Atlanta Fed President Raphael Bostic said on Monday that the
jobs data means the U.S. central bank may need to lift borrowing
costs higher than previously anticipated.
Benchmark 10-year yields rose as high as 3.666%,
the highest since Jan. 6, and are up from a low of 3.333% on
Thursday before the data. Two-year yields were last
at 4.452%, after reaching 4.493% on Monday, also the highest
since Jan. 6.
Fed funds futures traders now see rates rising above 5% in
May and dropping to only 4.79% by December. On Thursday, traders
had expected the rate to peak at 4.88% in June, and then fall to
4.40% by December. The Treasury Department will sell $40 billion in three-year
notes on Tuesday, the first sale of $96 billion in
coupon-bearing supply this week. It will also sell $35 billion
in 10-year notes on Wednesday and $21 billion in 30-year bonds
on Thursday.
(Reporting by Karen Brettell; editing by Jonathan Oatis)
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