U.S. Treasury prices rose, pushing yields lower, Friday after economic reports, including a closely watched reading of monthly employment for July, came in weaker than expected, and China announced retaliatory tariffs against the U.S.
The 10-year U.S. government bond yield TMUBMUSD10Y, -1.06% fell 3.5 basis points to 2.952%, after hitting 3% and finishing late Wednesday’s trade in New York at its highest yield level since May 23, according to Dow Jones Market Data.
The U.S. two-year note yield TMUBMUSD02Y, -0.61% the most sensitive to shifts in inflation and monetary policy, rose by 2.2 basis points to 2.641%. The 30-year bond yield TMUBMUSD30Y, -0.55% also known as the long bond, shed 2.8 basis points to 3.093%.
Bond yields fall as prices climb.
The U.S. gained 157,000 jobs in July, below the 195,000 MarketWatch forecast, although the unemployment rate slipped to 3.9% from 4% in June. Hourly pay rose 7 cents in July to $25.07, but the 12-month rate of wage gains was unchanged at 2.7%, coming in line with expectations.
Meanwhile, the total number of new jobs created in June and May were raised by a combined 59,000.
A report on services activity in the U.S., the ISM nonmanufacturing index, in July fell to 55.7%, marking an 11-month low, from 59.1%. A reading of at least 50 represents improving conditions.
Some market participants said the jolt in prices on Friday was partly prompted by traders bracing for a labor-market reading that might have indicated a much hotter jobs market. The less-than-stellar headline figures forced some investors to unwind bearish bets, which helped to drive yields lower and prices higher.
“The market was worried about some outsize strong event more than it was worried about a number that was inside the range of expectations,” said Matt Freund, head of fixed-income strategies at asset manager Calamos Investments.
“So I think it was just a matter of how people were positioned,” he said, referring to investor bets ahead of the report.
Moreover wage gains, which can be a harbinger of rising inflation, were muted.
Signs of rising inflation, as reflected by average hourly wages, could cause government bond yields to climb, pushing bond prices lower. Inflation growth is anathema to bonds because rising prices can chip away at fixed value, as well as compel the Fed to step up its pace of rate increases. Those are both factors that can deliver a blow to bond prices, driving up yields.
Treasury bonds also saw buying amid apparent trade tensions between the U.S. and China. Earlier this week, the Trump administration said it was considering increasing planned tariffs on $200 billion of Chinese goods to 25% from 10%. On Friday, officials in Beijing said they would retaliate tariffs on $60 billion of U.S. products.
Worries about U.S.-China tariff clashes have been buffeting markets and have so far kept in check a further acceleration of Treasury rates.
Overall, the economic data and the geopolitical backdrop are unlikely to alter the rate-hike path for the Federal Reserve, which is expected to lift interest rates in September after holding rates at a range between 1.75% and 2% on Wednesday at the conclusion of its two-day gathering.
Wall Street expectations for a rate increase by the Federal Open Market Committee at its September meeting are showing a 94% probability, according to CME Group Inc. data, reflecting federal-funds futures.
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