U.S. Treasury yields rose Friday after the October employment report showed the labor market remained robust, offering support to the Federal Reserve’s decision to keep rates on hold after it lowered interest rates for the third time this year.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +1.55% rose 3.6 basis points to 1.727%, trimming its weekly decline to 7.3 basis points. The 30-year bond yield TMUBMUSD30Y, +0.65% was up 3.5 basis points to 2.212%, paring its five-session fall to 7.9 basis points. The 2-year note rate TMUBMUSD02Y, +2.10% rose 3.6 basis points to 1.562%, winnowing its weekly skid to 6.2 basis points. All three maturities saw their biggest weekly drops in a month.
On Thursday, yields for the 10-year note and the 2-year note saw their biggest one-day decline since Aug. 5.
What’s driving Treasurys?
U.S. economic data on Friday reinforced the two diverging trends in the economy — healthy households and slowing factories.
October’s employment report showed the U.S. created 128,000 jobs, well above analysts’ estimate for 75,000. The unemployment rate ticked up by 0.1% to 3.6%, and average hourly earnings rose 0.2%. The strong reading came as a surprise to investors who had expected the General Motors auto strike to chip away at last month’s job gains.
The good employment report helped to offset another weak reading from the Institute for Supply Management’s U.S. manufacturing gauge, which came in at 48.3%, from 47.8% in the previous month. All numbers below 50% represent weakening economic activity.
U.S. stocks traded sharply higher on the mixed data with S&P 500 SPX, +0.97% up 0.7% midsession Friday, on pace to set another record close this week, while demand for safe haven Treasurys slipped.
Fed Vice Chairman Richard Clarida said on Bloomberg TV that he is “very happy” with the current monetary policy stance, two days after the U.S. central bank cut interest rates for a third consecutive time and said it would keep rates steady until the economic outlook materially weakened.
On the trade front, the Chinese Ministry of Commerce said Vice Premier Liu He had made a phone call with U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday, and that they had reached consensus in principle.
What did market participants’ say?
“It’s a strong report overall in terms of job creation and in terms of revisions to prior months. The probability of rate cuts has gone down,” said Steve Johnson, senior portfolio manager at SVB Asset Management. “The two narratives so far has been strong consumers and weak manufacturing. It remains to be seen which one will win out.”