Treasuries Rise After Jobs Report as Fed December Rate Odds Fade

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Investors in Treasuries are breathing a sigh of relief after the April employment report pushed out the consensus for when the Federal Reserve begins raising interest rates.

U.S. government bonds gained after the Labor Department reported for a second month that the economy added fewer jobs than forecast. A second day of price gains is helping to soften the losses rung up during the past two weeks amid a global selloff in fixed-income securities. A futures-based measure shows December as the first time the Fed is likely to increase rates.

“Was this strong enough for the Fed to hike in June? The answer is no,” said Michael Pond, head of global inflation-linked research in New York at Barclays Plc, one of 22 primary dealers that trade with the Fed. “Could we see data between now and then that leads them to go? It’s certainly possible, but this doesn’t point to it.”

Yields on 10-year notes fell three basis points, or 0.03 percentage point, to 2.15 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The price of the benchmark 2 percent note due in February 2025 rose 9/32, or $2.81 per $1,000 face value, to 98 22/32.

The yield touched 2.31 percent Thursday, the highest since Dec. 8. The low yield for the year was 1.64 percent on Jan. 30.

Fed Watch

The odds of a Fed interest-rate increase in December are 54 percent, according to CME Group Inc. calculations of fed funds futures prices, down from 62 percent before the jobs report.

Bond markets soured earlier this week as a selloff in German bunds spread globally amid a rise in oil and inflation expectations. The rout wiped out about $500 billion from the world debt market since April 29 before halting Thursday as higher yields attracted investors.

“Treasuries are a little bit more fairly priced at this point,” said Guy Haselmann, an interest-rate strategist in New York at primary dealer Bank of Nova Scotia.

Treasuries gained Friday as a report showed the U.S. added 223,000 jobs last month, compared with a forecast for a gain of 228,000 in a Bloomberg survey. The March gain was cut to 85,000, the smallest since June 2012, from 126,000.

The unemployment rate dropped to 5.4 percent in April, the lowest since May 2008. Average hourly earnings climbed less than forecast.

Jobs Scrutiny

“It’s not a bad report for the economy, but it’s not so good it raises concerns about the Fed taking the punch bowl away,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin.

Central bank policy makers said last month that they see “the risks to the outlook for economic activity and the labor market as nearly balanced.”

Fed Chair Janet Yellen said in a March 27 speech in San Francisco that “it is appropriate for monetary policy to remain accommodative for some time,” and that after an initial increase in rates this year, officials won’t follow “any predetermined course of tightening.”

The central bank has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since December 2008 to support the economy. It last raised the rate in 2006.

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