After steadily rising and hitting one week high on Thursday, U.S. government debt yields plunged sharply on Friday amid higher than expected job data. The markets stabilized slightly after initial selloff as investor’s keyed into sluggish wages and a decline in the number of people in the labor force.
Nonfarm payrolls jobs rose by 263,000 jobs in April compared to expectations of 185,000 jobs additions, driven by hiring nearly across all sectors. Wage growth remains soft – with average hourly earnings grew only 0.2% in the past two consecutive months, keeping the annual growth in wages around 3.2%.
“The Unemployment rate dropped to 3.6% vs. 3.8% [in] Mar; ostensibly a good thing, however, the participation rate was the cause,” Lyngen wrote in an email. “In light of the Fed’s emphasis on inflation at this point in the cycle, we’re not surprised to see the Treasury market is slightly higher following the data release.”
The yields also received some support after a decline in Supply managements nonmanufacturing index to 55.5% in April compared to analysts expectations for 57.5%. The growth in the index represents economic expansion while the drop is considered an economic contraction.
After dropping sharply amid better jobs addition at the beginning of a session, the benchmark 10-year Treasury note stabilized at the end of trading. However, the 10-year Treasury ended the day at around 2.527%, down 2.2 basis points from the previous closing. The yield on the 30-year Treasury bond was down at 2.919%.
Yields have recently received support from Federal Reserve Chairman Jerome Powell comments related to interest rate policy and inflation. The chairman said the decline in inflation number is due to transitory factors and they are not in a hurry to make changes to their rate policy. Traders are now focusing on consumer price inflation data due next Friday to make their opinion about inflation numbers.