- Manufacturing contraction clashes with labor-market strength
- U.S. August nonfarm payroll data to be released Friday
Treasuries gained, with shorter-dated notes outperforming longer-maturity securities, as mixed economic data muddied the outlook for the Federal Reserve’s interest-rate path ahead of Friday’s U.S. jobs report.
The gap between yields on five- and 30-year debt, a measure of the yield curve, climbed the most in two weeks as a report showed U.S. manufacturing unexpectedly contracted for the first time in six months. A separate Labor Department report showed fewer Americans than forecast filed applications for unemployment benefits last week.
Federal Reserve Chair Janet Yellen on Aug. 26 said the case for raising interest rates had strengthened at a meeting of policy makers in Jackson Hole, Wyoming. Traders assign about a 34 percent probability to a hike this month, according to futures data compiled by Bloomberg, down from 42 percent on the day of Yellen’s speech.
“There is a general feeling amongst market participants that the Fed is going to tighten either in September or December based on the nonfarm payroll number we get on Friday," said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings LLC in New York. “There’s just a general feeling that the Fed is getting ready for something. But we’ve been down this road so many times, and I’m still very wary.”
The benchmark 10-year note yield fell one basis point, or 0.01 percentage point, to 1.57 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 was 99 12/32.
Yields on two-year notes, which are more sensitive to Fed policy expectations, fell two basis points to 0.78 percent. The gap between five- and 30-year yields rose to 105 basis points.