ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


Treasury prices jumped Friday after a weaker-than-expected jobs report soothed concerns that the Federal Reserve would surprise the market by pulling back on its low-rate policies. The Labor Department report showed 209,000 new nonfarm jobs were created in July, below expectations of 235,000. The jobless rate rose to 6.2% from 6.1%. Average hourly earnings were unchanged, while the participation rate rose slightly.

The 10-year Treasury note (10_YEAR) yield, which falls as prices rise, was down 4.5 basis points on the day at 2.514%, according to Tradeweb.

The gulf between short- and long-term Treasury yields widened, suggesting that traders were revising their expectations about when the central bank will raise rates.

A strong report on gross domestic product on Wednesday stoked fears that Fed Chairwoman Janet Yellen and the rest of the policy committee would consider rate hikes. But the jobs report has calmed those expectations a bit, according to Jim Kochan, chief fixed-income strategist at Wells Fargo Asset Management.

“Part of the reason for the selloff in Treasurys we had seen this week was the GDP report. With this report, some of those fears go away,” he said, adding that Yellen’s, “contention was that wage increases would signal that there is some degree of tightness in the labor market, and we didn’t get any of that in the jobs report.”

The 5-year note (5_YEAR) yield plunged 8 basis points to 1.686% and the 30-year bond (30_YEAR) yield fell a basis point to 3.304%. The differential between them increased by 7 basis points to 1.62 percentage points.

Traders put a 50% probability of a first rate hike occurring in June 2015, compared with a 55% chance in the previous session, according to CME FedWatch, which tracks fed funds futures contracts that are used to bet on rate hikes.

Investors digested an otherwise packed day for economic news. Here’s what else was on the docket:

* Two Fed officials spoke, suggesting some disagreement among the hawkish members about when the central bank should begin hiking rates. Richard Fisher, the president of the Dallas Fed, said he thought the economy was moving the Fed closer to the timing of rate hikes. On the other hand, Charles Plosser, the president of the Philadelphia Fed, said he thought the Fed should be moving quicker.

* The Institute for Supply Management manufacturing index jumped to 57.1% in July. form 55.3% in June, the fastest pace in over three years. That beat economist forecasts of 56.0%.

* Consumer spending rose by 0.4% in June while personal income rose by 0.4%. The PCE index climbed 1.6% during the 12 months ended in June.