U.S. Treasury yields settled higher Friday following a upbeat jobs report that enticed investors into riskier assets and brushed back fears of a looming U.S. recession.
The U.S. economy added 266,000 jobs in November, the biggest monthly gain since January, according to Labor Department data. Economists polled by MarketWatch had forecast 180,000 new jobs last month, but employment rebounded strongly as employees returned to work following a major General Motors Co. GM, +0.65% strike.
On top of that, the government revised the increase in new jobs in October to 156,000 from 128,000 and September’s gain was raised to 193,000 from 180,000.
The yield on the 10-year Treasury note TMUBMUSD10Y, +1.58% rose 4.7 basis points to 1.842%, its largest weekly rise since Nov. 8, while the 2-year Treasury note TMUBMUSD02Y, +2.82% yield rose 3.7 basis points at 1.619%, its biggest rise in three weeks, according to Dow Jones Market Data. The 30-year Treasury bond TMUBMUSD30Y, +0.96% yield rose 3.8 basis points to 2.284%, snapping a three week drift lower.
Rates on the benchmark 10-year note initially jumped 5.5 basis points to 1.850% on the heels of the surprisingly strong employment data, but pared some gains as traders digested the report.
Demand for haven gold also dropped following Friday’s strong jobs report, leaving the precious metal down 0.5% for the week. U.S. stocks rallied sharply, with the Dow Jones Industrial Average DJIA, +1.22% gaining more than 300 points, while helping to narrow its weekly loss to 0.13%, according to FactSet data.
The U.S. jobs report also showed the unemployment rate fell to 3.5%, a 50-year low. The average wage paid to American workers rose 7 cents, or 0.2%, to $28.29 an hour but the 12-month rate of hourly wage gains slipped to 3.1% from 3.2%.
Read: ‘That’s a lot of jobs!’ economists exclaim after strong payrolls report
Robust recent jobs growth could make the Fed less reluctant to change benchmark interest rates at next week’s Federal Open Markets Committee (FOMC) meeting.
“Overall, this positive report should provide no reason for the Federal Reserve to move away from a ‘hold’ stance towards future rate cuts,” said Doug Duncan, chief economist at housing giant Fannie Mae FNMA, +6.07%, in prepared commentary.
Read: Fed is ‘super-glued’ to its seat until after the election, economists say after stellar jobs report
But Duncan also pointed to a modest decline in residential construction jobs that suggests those hoping for “an acceleration of housing supply growth will be disappointed.”
Joseph Lavorgna, a Natixis chief economist, said unemployment still could fall to about 3%, but that a lot will hinge on support from the Fed.
“Monetary policymakers also have to be careful with the balance sheet, which is expanding again because of strains in the repo market,” Lavorgna wrote in a client note Friday. “While the Fed’s current $60 billion per month in Treasury bill buying is set to conclude in March, FOMC members may need to extend these purchases.”
Check out: The repo market is ‘broken’ and Fed injections are not a lasting solution, market pros warn
Also on Friday, U.S. consumer sentiment data showed a slight improvement for December, with the University of Michigan’s gauge rising to a preliminary 99.2 reading, from a final November reading of 96.8, and beating forecasts of 96.9.
U.S. household spending also picked up in October, to its second-highest monthly rate of the year, according to Federal Reserve data released Friday, fueling hope that a strong consumer can help extend the longest period of U.S. economic expansion on record.
Beyond economic reports, bond traders have been watching for progress toward a China-U. S. trade resolution, with positive signs helping to lift stocks, while also undercutting appetite for haven assets.
China’s State Council on Friday began the process of exempting some soybeans and pork imported from the U.S. from punitive tariffs, the state-run Xinhua News Agency said. But the strong jobs report also emboldened some on Wall Street to suggest that Washington might now be less eager to strike a quick trade accord with Beijing.
Add Comment