U.S. bond yields rose Friday morning, led by the 2-year maturity, after a stronger-than-expected U.S. jobs report for June bolstered the view that the Federal Reserve will continue to raise interest rates aggressively to combat inflation.
- The yield on the 2-year Treasury TMUBMUSD02Y, 3.119% rose to 3.107% from 3.039% as of late Thursday.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.078% advanced to 3.061% versus 3.007% on Thursday afternoon.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.249% rose to 3.229% from 3.195% in the prior session.
- The 2-year to 10-year spread of minus 4.4 basis points left the yield curve inverted, potentially signaling a looming economic downturn.
What’s driving markets
Data released on Friday showed that the U.S. created a greater-than-expected 372,000 new jobs in June, confounding predictions of a big slowdown in hiring. Economists polled by The Wall Street Journal had forecast 250,000 new jobs.
The robust report pushed Treasury yields higher and left the yield curve inverted, as traders factored in the need of the Federal Reserve to keep raising borrowing costs in its campaign to suppress inflation.
Fed funds futures traders now see a 95% chance that policy makers will lift the fed funds rate by 75 basis points at their July 26-27 meeting, to between 2.25% and 2.5% from its current level of 1.5% to 1.75%. They see a 29% likelihood of another 75 basis point move in September.
Official data published on Thursday showed the number of Americans applying for unemployment benefits was 235,000. It was the highest level in six months.
Meanwhile, investors concerns have been swinging back and forth between worries about inflation and economic growth. As of Thursday, the MOVE index, a gauge of expected Treasury market volatility, is trading near 150, just shy of a multi-year high and up from a 52-week low of almost 52.
What analysts are saying?
“The June jobs report is stronger than expected when looking at the number of jobs added, serving as an antidote to fears about a lack of economic momentum,” Mark Hamrick, senior economic analyst at Bankrate.com. “The employment report does nothing to dissuade Federal Reserve officials from sticking to their interest rate raising plans, looking to send inflation down, and closer to their 2% target. The next key reading for the Fed is the Consumer Price Index due in the days ahead.”