Economists polled by Reuters had forecast non-farm payrolls rising 239,000 in March. "The data are going to keep the Fed on track for a 25-basis-point hike in May," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.
"We are looking for a 25-basis-point increase in June too, and these numbers would fit that bill."
The two-year Treasury yield, which typically
moves in step with rate expectations, rose 17.2 basis points to
3.993%, reversing a sharp decline earlier this week on weak
economic data that had suggested a recession was on the horizon.
The yield on 10-year Treasury notes also rose,
up 12.3 basis points to 3.413%.
The data showed the unemployment rate declined to 3.5% from 3.6% the prior month, while the annual increase in wages fell to 4.2% from 4.6% in February, a slower pace that is likely to please the Fed as it tightens monetary policy to curb inflation. "The bright spot is again the average hourly earnings. They came in a little bit below expectations," said Russell Price, chief economist at Ameriprise Financial in Troy, Michigan, who nevertheless called the jobs market tight. "That is further encouraging for the Fed that wage inflation is easing, and thus may be taking some pressure off their need to increase rates further." Futures showed the likelihood that the Fed will raise rates by 25 basis points when policymarkers conclude a two-day meeting on May 3 rose to 67% from 49.2% on Thursday, according to the CME's FedWatch Tool.
Expectations for the Fed's overnight lending rose to 5%, while the size of rate cuts projected by year-end narrowed as the target rate rose to 4.259% in December from 4.193% before the morning's unemployment report. . The market is caught between those who see a hard landing from tighter credit and those who just see slower growth. "We think the credit crunch will just be a blip and really won't impact tremendously," Rupert said. "Treasury yields have increased, as one would expect, reflecting that expectation." Bank credit growth has dropped below the long-term average of about 7.2% and is now below 5.0%, a rate that is often, though not always, associated with recessions.
The yield curve measuring the gap between yields on two- and 10-year Treasuries , seen as a recession harbinger when yields on shorter-dated securities are higher than those with longer terms, remained inverted at -52.8 basis points.
The yield on the 30-year Treasury bond was up 8.3 basis points to 3.623%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.396%. The 10-year TIPS breakeven rate was last at 2.26%, indicating the market sees inflation averaging about 2.3% a year for the next decade. The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.453%.
April 7 Friday 12:06 p.m. New York / 1606 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.8025 4.9264 0.041
Six-month bills 4.755 4.9371 -0.008
Two-year note 99-199/256 3.993 0.172
Three-year note 102-96/256 3.7602 0.173
Five-year note 100-126/256 3.5161 0.159
Seven-year note 100-248/256 3.4673 0.142
10-year note 100-184/256 3.4131 0.123
20-year bond 101-224/256 3.7401 0.085
30-year bond 100-8/256 3.6231 0.083
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 31.00 -1.00
U.S. 3-year dollar swap spread 15.25 -1.00
U.S. 5-year dollar swap spread 7.00 0.25
U.S. 10-year dollar swap spread 0.25 0.50
U.S. 30-year dollar swap spread -40.50 0.25
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Near-term forward spread plunges to fresh lows Bank credit growth is slowing already ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Herbert Lash; Editing by Jan Harvey, Kirsten
Donovan)
