Gross Eyes 2.6% Yield for Bear Market as Treasuries Fall on Jobs

  • Benchmark yields climb with wage growth highest since 2009
  • Declines on December labor report pare three-week rally

Bill Gross: Jobs Number 'Decent,' Economy Improving

Treasuries were set to close near the lowest levels of the day, halting a three-week rally, after a report showed the U.S. economy generated solid job growth to end 2016, with wages rising the most in more than seven years. 

The yield on the benchmark 10-year note rose about seven basis points to 2.42 percent at 4:08 p.m. in New York. The move followed Labor Department data showing the U.S. created 156,000 jobs last month, compared with the 175,000 median expectation in a Bloomberg survey. Paychecks in December rose 2.9 percent from a year earlier, the most since 2009, bolstering the Federal Reserve’s case to raise interest rates in 2017. Loretta Mester, president of the Cleveland Fed, said Friday that three hikes this year is a reasonable number, while Philadelphia Fed President Patrick Harker said he was penciled in for three as well.

The $13.9 trillion Treasuries market is at an inflection point and is coming close to breaking a three-decade trend of falling yields, said Bill Gross at Janus Capital Management. Even after Friday’s losses, the 10-year U.S. yield remains more than 0.2 percentage point below its peak on Dec. 15, the day after the Fed raised rates for the first time in a year. The 2.64 percent level reached that day was the highest since 2014.

“If the 10-year breaks 2.6 percent on a weekly or on a monthly basis, because it’s so strong and so important in terms of technical analysis, that if and when it’s broken on the upside, it’s a bear market,” Gross, who manages the $1.7 billion Janus Global Unconstrained Bond Fund, said Friday in an interview on Bloomberg Television and Bloomberg Radio. “And if it’s not broken on the upside, we just stay where we are.”

Treasuries have still gained for three straight weeks, the longest stretch since July, when U.S. yields set record lows after the U.K. vote to leave the European Union. 

Treasuries rallied Thursday by the most since June. That was an exception to the trend, and the latest jobs report will encourage the Fed to proceed with rate hikes as planned, said Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg View columnist. 

The median forecast of economists and strategists surveyed by Bloomberg last month calls for the 10-year yield to climb to 2.66 percent by year-end.

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