Treasurys Drop Sharply After Jobs Data
Chicago (Mar 7) Treasury bond prices dropped sharply on Friday, sending the 10-year yield to its highest level since late January after job growth in February exceeded market expectations and sapped demand for haven assets.
The benchmark 10-year note's yield touched 2.817%, the highest level since late January. When bond prices fall, their yields rise.
In recent trading, the 10-year note was 17/32 lower in price, yielding 2.792%, according to Tradeweb. The yield traded at 2.73% right before the data.
The moves came after the Labor Department said the U.S. economy added 175,000 nonfarm jobs in February, beating expectations of a rise of 152,000.
"The U.S. economy has underlined strength despite the adverse weather in January and February,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading in New York at Deutsche Bank AG's private wealth management unit.
"The jobs report supports the [Federal Reserve] to continue to" cut its monthly bond buying," he said. Mr. Pollack expects the 10-year yield to rise closer to 3% over the next month.
The Fed has cut its monthly bond buying to $65 billion currently from $85 billion in December. Many analysts and economists expect the Fed to cut bond buying by another $10 billion in its policy meeting due later this month.
Signs of improvement in the labor market will boost investors' confidence that the recent soft patch was driven by harsh winter weather and could be tapering off.
After a sharp rise last year on an improving economy and the prospect of reduced stimulus from the Fed, the 10-year note's yield has fallen this year amid the debate over the extent to which chilly weather in the past two months have distorted the actual state of the economy.
The 10-year yield rose by over one percentage point during 2013 and settled at 3.03% at the end of December, the highest level since 2011.
Some traders expect the 10-year yield to rise above 3% later this year, betting that growth momentum will resume and the Fed will phase out the bond buying before the end of the year.
Bond yields may rise at a slower pace compared with last year as Fed officials have signaled that they would continue to keep short-term interest rates near zero even after it stops buying bonds, traders said.
Fed officials have been considering whether to beef up their forward guidance on short-term interest rates. They have signaled that a rate hike may not occur if inflation remains way below the central bank's 2% target even if the jobless rate dips to 6.5% or lower.
Source: Online WSJ
