By Ellie Ismailidou
NEW YORK (MarketWatch) -- Treasury yields spiked Friday after
the Bureau of Labor statistics said the U.S. economy created
295,000 new jobs in February, though wage growth remained
stagnant.
The yield on the 10-year note rose 11 basis points to a
year-to-date high of 2.224%, according to Tradeweb data.
The 30-year bond yield increased 9.9 basis points to a
year-to-date high of 2.807%.
The two-year note yield rose 8.7 basis points to a year-to-date
high of 0.719%.
Bond yields move inversely to prices.
Economists celebrated the 295,000 new jobs number, which came in
well above the 238,000 consensus. The unemployment rate declined to
5.5% from 5.7%.
Traders immediately began parsing the impact of the jobs numbers
on the timing of the first Fed rate hike since 2006.
"It was a solid report, which keeps the Fed on track for an
interest rate hike sometime this summer or as late as September,"
said Kathy Jones, Chief Fixed Income Strategist at Schwab Center
for Financial Research.
Federal Reserve Chairwoman Janet Yellen highlighted the key role
wage growth will play in any interest rate hike decision during her
February testimony before Congress.
The economy has added at least 200,000 jobs for 12 straight
months, the longest streak since 1995.
The constant month-over-month increase means the Fed will
probably drop the word "patient" from its forward guidance in its
next meeting, Jones said, which would be interpreted as a sign that
a rate hike is near.
But the Fed's conundrum is the continuous job growth with no
inflation, Jones said.
Average hourly wages rose 3 cents, or a meager 0.1%, to $24.78
in January. And the year-over-year increase was a lackluster 2%,
said the Department of Labor Statistics.
According to Jones, inflation pressures and lackluster wage
growth stem from the fact that job growth is concentrated in the
service sector and in lower paying jobs.
Still, the news is expected to keep Treasury yields rising,
albeit not steeply.
Treasury yields have been moving higher since Feb. 2, with the
yield on the 10-year note rising toward a fresh year-to-date high
at 2.224%.
"The trend now is starting to edge up but I don't think it will
be a fast move up," Jones said.
"What we will definitely see is more of a flattening of the
yield curve, as the market has an expectation of rising short-term
rates at a time when inflation is still low," Jones added.
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