Treasury yields declined after a stronger-than-expected employment report, as investors saw little evidence of overheating wage growth and inflation in a month with healthy job creation.
The U.S. created 850,000 jobs in June, according to the Bureau of Labor Statistics, above Wall Street’s forecasts for 720,000. Wage growth was in line with forecasts, with average hourly earnings up 3.6% from last year and 0.3% from May, and the average workweek declined. The unemployment rate rose slightly to 5.9%, which Wall Street attributed to discrepancies between the household survey, which determines the unemployment rate, and the establishment survey, which measures payrolls data.
Investors appeared to be betting that the Federal Reserve wouldn’t significantly speed up plans to reduce its pace of bond purchases as a result of the report, which contained few signs of strong wage inflation or labor market bottlenecks.
Declines were steepest for 5-year and 7-year yields in midmorning trading, while the 10-year yield was less than one basis point lower at 1.45% and 30-year yields were nearly flat. Most of the change came from “real rates” instead of bond-market inflation pricing—indicating the response, however muted, was driven by the view that the report wouldn’t prompt the Fed to take a tougher stance.
“Today’s payrolls report brings us no closer to a Fed taper than we were yesterday, other than of course the passing of 24 hours,” wrote Wells Fargo strategists in a note following the release.
Strategists at TD Securities highlighted that the U.S. remains 6.8 million jobs behind where it was before the Covid-19 pandemic.
“The market is struggling to price in a stronger economic outlook or a faster Fed exit. We think that the Fed will signal patience and that should mean a steeper curve and higher long end rates,” the bank wrote. “All eyes on the Fed minutes next week.”
rose 0.3% and the
Dow Jones Industrial Average
inched up 0.1% in Friday morning trading.
Write to Alexandra Scaggs at [email protected]