- March job gains top forecasts even as unemployment rate rises
- Gap between yields on two-, 30-year U.S. debt declines
Treasuries fell, pushing yields up from the lowest in a month, as U.S. jobs data for March supported speculation that the Federal Reserve will raise interest rates this year.
Five-year notes led declines after the Labor Department said the U.S. created 215,000 jobs last month, more than the 205,000 median forecast in a Bloomberg survey of economists. The gap between yields on two- and 30-year U.S. debt, known as the yield curve, fell.
“The curve is definitely flattening today and now starting to gain a little momentum,” said Brian Edmonds, the head of interest rates in New York with Cantor Fitzgerald Co., one of 22 primary dealers that trade with the Fed. “People are looking at the long end on a relative value basis globally, and the bonds are still relatively cheap against bunds and others.”
Signs of labor-market strength may slow Treasuries’ momentum after the market’s strongest annual start since 2008. Debt surged at the end of the first quarter after Fed Chair Janet Yellen said this week that caution in raising rates was warranted, and that global economic and financial developments pose risks to growth. She also expressed confidence that inflation would gradually return to the Fed’s 2 percent goal.
The yield on the five-year note rose one basis point, or 0.01 percentage point, to 1.21 percent as of 5 p.m in New York, according to Bloomberg Bond Trader data. The price of the 1.25 percent note due in March 2021 was 100 5/32.
The gap between two- and 30-year yields fell one basis points to 1.88 percentage points as the latest drop in oil prices helped underpin longer-dated bonds, which are more influenced by the outlook for inflation and economic growth.
Hedge-fund managers and other large speculators increased net futures bets to the highest level since May 2014 that long-dated U.S. debt would gain. Speculative long positions, or bets on gains, outnumbered short positions by 59,904 contracts in the week ended March. 29, Commodity Futures Trading Commission data show.
Labor Department data showed average hourly earnings jumped 2.3 percent from a year earlier, compared with forecasts for a 2.2 percent rise. The unemployment rate ticked higher to 5 percent in March from 4.9 percent in February as the labor-force participation rate rose.
“This report is another one that’s in line with what the Fed wants to see,” said David Keeble, New York-based head of fixed-income strategy at Credit Agricole SA. “We’ve inched another small baby step towards a hike, and the two-year yield is taking that on board.”
At their March policy-setting meeting, Fed officials cut their forecasts for 2016 rate hikes to two from four, after they raised rates in December for the first time in nearly a decade.
Traders see a 24 percent probability the Fed will raise interest rates by June, up from a 20 percent probability assigned Thursday, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.