Treasuries Rise as U.S. Economy Adds Fewer Jobs Than Expected

  • Two-year note yield touches lowest level since February
  • Traders cut probability of a 2016 Fed rate increase to 43%

Analyzing the Data Behind the April Jobs Report

Treasuries rose, pushing two-year note yields to the lowest in almost three months, after a report showed the U.S. economy added fewer jobs than forecast in April, undermining the case for the Federal Reserve to raise interest rates this year.

Yields fell across maturities after the Labor Department said the U.S. created 160,000 jobs last month, compared with the 200,000 median forecast in a Bloomberg survey of economists. Average hourly earnings rose 0.3 percent from a month earlier, in line with estimates.

The report led traders to reduce wagers that policy makers will proceed with rate increases in coming months, even after officials including St. Louis Fed President James Bullard said this week that June’s gathering is “live.” Investors have been buffeted by mixed signals. On the one hand, inflation expectations have rebounded after falling in February to the lowest since 2009. Yet international data this week stoked concern that slowing global economies may crimp U.S. growth.

“Data overall has been somewhat on the weaker side,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA, one of 23 primary dealers that trade with the Fed. “The number is not necessarily bolstering confidence on the outlook.”

Fed Odds

Benchmark 10-year yields fell three basis points, or 0.03 percentage point, to 1.72 percent as of 8:49 a.m. New York time, according to Bloomberg Bond Trader data.

The yield on the two-year note, the security most sensitive to Fed policy expectations, fell two basis points to 0.70 percent, and touched the lowest on an intraday basis since Feb. 12.

The market-implied probability of a Fed rate increase by year-end fell to 43 percent from about 50 percent in the minutes before Friday’s data, futures data compiled by Bloomberg indicate. The probability of an increase at the Fed’s June meeting fell to 4 percent.

In March, policy makers projected two rate increases in 2016, after they lifted rates by a quarter-point from near zero in December. 

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