(Recasts, updates yields, adds Eurodollar futures, analyst
comments, and upcoming auctions)
By Karen Pierog
CHICAGO, May 7 (Reuters) - U.S. Treasury yields fell to
two-month lows on Friday after data showed a much
smaller-than-expected jobs gain in April, but later bounced
higher, with yields on longer-dated debt rising for the session.
The benchmark 10-year yield, which dropped to
1.469%, the lowest since March 4, was last up 1.6 basis points
at 1.5771%, holding below a 14-month high of 1.776% reached on
March 30.
The 30-year yield tumbled to its lowest level
since March 1 at 2.158%. It was last 3.6 basis points higher at
2.2723%.
Nonfarm payrolls increased by only 266,000 jobs last month
after rising by 770,000 in March, the Labor Department reported.
Economists polled by Reuters had forecast payrolls advancing
by 978,000 jobs. The unexpected slowdown in job growth was
likely due to shortages of workers and raw materials as the
economy recovers from the coronavirus pandemic.
The yield drop was a "knee-jerk reaction" that faded as the
session wore on and the market digested the data, according to
analysts.
"Despite a huge miss, which it was, it's still employment
going in the right direction," said Andrew Richman, senior fixed
income strategist at Sterling Capital Management.
John Canavan, lead analyst at Oxford Economics, said the
report reinforced the idea the Federal Reserve can stay on its
present course for longer, which led to intermediate yields
outperforming longer-dated yields, steepening the five-year note
to 30-year bond curve.
"As market participants pile into curve steepening trades,
part of that results in selling of the long end," he said.
That yield curve was last about 6 basis points
steeper at 149.75 basis points.
U.S. interest rate futures indicated that traders pushed out
expectations of a Fed rate hike by roughly three months after
the payrolls report's release.
Eurodollar futures, which are a proxy for interest rate
expectations, showed a 90% chance of an interest rate hike in
March 2023, and fully priced in a hike in June 2023.
Prior to the report, investors were betting there was a 90%
chance of a hike in December 2022, and a 100% chance in March
2023.
Inflation expectations temporarily eased in the wake of the
jobs data with the breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) falling as
low as 2.586% from 2.661% at the previous close. It was last at
2.683%, down from a 10-year high of 2.696% reached on Wednesday.
The 10-year TIPS breakeven rate also rebounded
after falling. It was last at 2.497%, the highest since April
2013.
"The Fed's being extremely easy here still. We have stimulus
coming on. It's inflationary in the short run," Richman said.
The two-year Treasury yield, which typically
moves in step with interest rate expectations, was last 1 basis
point lower at 0.1468%.
A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes
was about 2 basis points steeper at 143.20 basis
points.
Next week will bring a burst of supply, with the U.S.
Treasury auctioning $58 billion of three-year notes on Tuesday,
$41 billion of 10-year notes on Wednesday, and $27 billion of
30-year bonds on Thursday.
May 7 Friday 2:00PM New York / 1800 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.000
Six-month bills 0.035 0.0355 -0.005
Two-year note 99-245/256 0.1468 -0.010
Three-year note 100-64/256 0.2893 -0.022
Five-year note 99-226/256 0.7741 -0.022
Seven-year note 100-18/256 1.2394 -0.004
10-year note 95-236/256 1.5771 0.016
20-year bond 95-112/256 2.1597 0.033
30-year bond 91-112/256 2.2723 0.036
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 10.25 -0.50
spread
U.S. 3-year dollar swap 13.00 -0.75
spread
U.S. 5-year dollar swap 9.00 -0.75
spread
U.S. 10-year dollar swap -2.25 -0.75
spread
U.S. 30-year dollar swap -28.25 -1.25
spread (By Karen Pierog; additional reporting by Ann Saphir and Kate
Duguid
Editing by Sonya Hepinstall)
Read More
