U.S. Treasury Bond Prices Strengthen After Jobs Report

Prices of U.S. Treasury bonds have strengthened thus far on Friday, as the impact of fresh monetary stimulus from the European Central Bank trumped a U.S. jobs report that slightly beat economists forecast. Government bonds in euro zone rallied for a second day following Thursday’s ECB announcement of a new package of stimulus for the economy, including a cut in interest rates to a record low. The liquidity sent bond yields in Germany, the euro zone’s benchmark, further below those on U.S. Treasurys, increasing the allure of U.S. bonds for relative value.

“European government bonds are rallying big time and that is benefiting Treasury prices,” said Tom di Galoma, head of fixed-income rates in New York at ED & F Man Capital Markets. “U.S. jobs data was spot on the estimates, so no big surprise there.”

In the day’s recent trading, the 10-year note was priced 5/32 higher, yielding 2.564%, according to Tradeweb. The yield was 2.586% just before the jobs data was published. When bond prices rise, yields fall.

Still, bond yields briefly rose when the Labor Department said the U.S. economy added 217,000 nonfarm jobs in May, compared with 210,000 forecast by economists. But the April jobs growth was revised lower to 282,000 from the 288,000 initially reported.

The nonfarm-jobs release includes hiring for both the public and private sector. It is a key gauge of the labor market and is closely watched by the Federal Reserve in setting monetary policy.

Analysts said the report was the latest reminder of a still uneven pace of the economic recovery, which supported the Federal Reserve’s case to take its time in shifting gears to higher interest rates.

The consensus now among many investors and economists is for the Fed to start raising its key policy rate-the fed-funds target rate-during the second half of 2015. The Fed has held the rate near zero since December 2008 to support the economic recovery.

The 10-year Treasury yield has risen after hitting 2.4% last week, an 11-month low. Investors have lightened up their bond portfolios, reflecting a view the sharp decline in bond yields was overdone.

A number of indicators earlier this week have showed the U.S. economy is picking up some momentum from the harsh winter, giving investors another incentive to book profits from the bond market. A gauge of the U.S. manufacturing sector strengthened last month, a barometer of the service sector rose to the highest in nine months, auto sales jumped and factory orders beat economists forecast.

By Min Zeng