- Data show employment gains in February even as wages fell
- Benchmark 10-year yield rises to highest level in a month
Treasuries fell, pushing 10-year yields to a one-month high, after a report showed U.S. jobs growth was solid enough in February to sustain speculation that the Federal Reserve will raise interest rates this year.
Government debt declined after the Labor Department said the U.S. created more jobs than forecast in February even as average hourly earnings fell from the month before. A bond-market gauge of inflation expectations rose for an 11th day, the longest streak since 2006, according to data compiled by Bloomberg. Stocks and oil prices advanced.
The jobs report may bolster wagers that policy makers will proceed with rate increases in 2016. Inflation expectations have surged since falling last month to the lowest level since the financial crisis, while manufacturing data this week diminished concern that cooling global economic growth will push the U.S. into a downturn.
“There’s no arguing with the fact it’s a good number -- it brings the Fed closer to a rate hike,” said David Keeble, New York-based head of fixed-income strategy at Credit Agricole SA. “June is definitely in the cards. It could come even earlier, but June would be the best guess.”
Benchmark 10-year yields rose four basis points, or 0.04 percentage point, to 1.88 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data, the highest on a closing basis since Feb. 3. The price of the 1.625 percent note maturing in February 2026 fell 11/32, or $3.44 per $1,000 face amount, to 97 3/4.
The yield on the two-year note, the security most sensitive to Fed policy expectations, rose two basis points to 0.86 percent, the highest since Jan. 22.
The gap between yields on five-year Treasuries and equivalent inflation-indexed securities, known as the break-even rate, rose to the highest since July 31.
The market-implied probability of a Fed rate increase by December was about 67 percent, futures data compiled by Bloomberg indicate. The figure has climbed from as low as 11 percent in February.
The U.S. gained 242,000 jobs in February, a Labor Department report showed Friday, compared with the 195,000 median forecast in a Bloomberg survey of economists. It followed a 172,000 rise in January that was larger than previously estimated. Average hourly earnings unexpectedly dropped, the first monthly decline in more than a year, and workers put in fewer hours. The jobless rate held at 4.9 percent.
The jobs report "does signal to the bond market maybe that they were too aggressive in pricing out a rate hike," said Sharon Stark, a fixed-income strategist at D.A. Davidson & Co., a broker-dealer in St. Petersburg, Florida.
In December, policy makers lifted rates by a quarter-point from near zero and forecast four more increases this year. Officials have projected that risks to growth and inflation would prove transitory. The central bank’s favored inflation measure hasn’t reached officials’ 2 percent target since 2012.