• U.S. government debt off to best annual start since 2008
  • Traders don't fully price in next Fed hike until 2017

Benchmark Treasuries logged their best week since January even as data pointed to U.S. job-market strength. The rally shows traders are betting the Federal Reserve is focusing more on the struggling global economy than on data back home, according to Aaron Kohli of BMO Capital Markets.

Treasuries are off to their best annual start since 2008 as slowing economies worldwide and market volatility fuel demand for a haven. Labor Department figures Friday showing stronger-than-expected U.S. job creation and wage growth in March barely put a dent in the bond market’s weekly gain. And investors remained skeptical that the Fed would raise interest rates again by June.

There are signs that Fed Chair Janet Yellen and fellow policy makers are changing how they decide on policy, putting more weight on global financial conditions, Kohli said. Even as U.S. data improve, central bankers’ concern has shifted to the potential for disturbances abroad to weigh on U.S. growth, he said.

“The reason Treasuries haven’t sold off is the fact that there are still a lot of concerns, not about the U.S., but on the international stage,” said Kohli, an interest-rate strategist in New York at BMO, one of the 22 primary dealers that trade with the Fed.

The yield on benchmark Treasury 10-year notes fell 13 basis points this week, or 0.13 percentage point, to 1.77 percent, and touched a one-month low.

2016 Outlook

Yields on two-year notes, the coupon security most sensitive to Fed policy, fell 15 basis points on the week to 0.72 percent. The move exceeded the drop following the Fed’s March meeting, when officials cut their outlook for 2016 rate increases to two from four.

U.S. employers added 215,000 jobs in March, while economists projected a gain of 205,000. Average hourly earnings rose 2.3 percent from a year earlier, while the median forecast was for a a 2.2 percent rise.

A selloff Friday in stocks in Europe and Asia helped explain Treasuries’ resilience, BMO’s Kohli said. While the Standard & Poor’s 500 Index has rebounded to post a gain for 2016, investors in most European and Asian stock markets still face losses.

‘Outside Influences’

“There are just too many outside influences," for the jobs report to move the market significantly, said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings LLC in New York.

An Atlanta Fed index shows the American economy may be feeling the effect of the concerns about global growth. U.S. gross domestic product may have expanded at a 0.7 percent seasonally adjusted annual rate in the first quarter, the index estimates. That compares with a 1.4 percent pace in the fourth quarter.

Traders pushed back expectations for the next Fed increase after Yellen in a March 29 speech cited slowing Chinese growth and the outlook for commodities prices as risks. It’s appropriate to “proceed cautiously” in raising rates, she said.

The probability that overnight-indexed swaps traders assign to a rate boost at or before the Fed’s June meeting fell to 18 percent Friday from 34 percent a week earlier.

Hedge funds and other large speculators piled into 30-year bond futures in the week ended March 29, amassing their biggest net bullish position since 2014, Commodity Futures Trading Commission data show.

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