U.S. Government Bond Yields Slip After Jobs Data

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U.S. government-bond yields and the dollar fell Friday after a tepid jobs report signaled the labor-market recovery may take longer than expected. 

The yield on the benchmark 10-year Treasury note finished Friday’s session at 1.559%, according to Tradeweb, down from 1.624% at Thursday’s close. That marked the third straight week of declines. The WSJ Dollar Index, which measures the U.S. currency against a group of others, slipped 0.5%.

Yields, which rise when bond prices fall, slipped after the Labor Department said the economy added 559,000 jobs in May, up from the 278,000 jobs in April but short of the 671,000 jobs that economists surveyed by The Wall Street Journal had anticipated. The jobless rate came in slightly below their expectations of 5.9%, falling to 5.8% in May from 6.1% in April.

The 10-year yield, which tends to rise when investors expect periods of growth and inflation, has spent months stalled near 1.6%. The key measure of borrowing costs started the year below 1% before rising to around 1.75% in March, lifted by bets on a speedy recovery and higher-than-expected inflation, which erodes bonds’ fixed interest payments and can spur the Federal Reserve to raise interest rates. Signs that the rebound has proceeded more moderately have helped drive the stall, some analysts said. 

Friday’s yield moves suggest investors aren’t making significant changes to their economic outlook, analysts said. Many expect the return to full employment to take some time, but are monitoring the Fed for signs of a shift away from easy-money policies. Analysts say a weaker-than-expected jobs number decreases the prospect of that.

“This is kind of a middling [jobs] report and that’s how the market is reacting,” said

Larry Milstein,

head of government and agency trading at R.W. Pressprich & Co. “In my mind, it doesn’t change the timeline of [the Fed] tapering.”

Others doubt that the recent Treasury market calm will last if the economy shows more signs of acceleration. Capital Economics is forecasting that the 10-year yield will end this year at 2.25%.

Bank of America

expects the Fed to signal its intention to taper its bond purchases in late summer or early fall and to complete that process by the end of next year.

Minutes from the Fed’s April meeting released earlier this week showed that board members have discussed reducing the size of their bond-purchasing program. Earlier this week, the central bank said it would begin selling corporate bonds acquired during last year’s efforts to calm volatile markets. 

Others are less convinced the economy is near the point for the Fed to tighten policies. Federal Reserve Bank of New York leader

John Williams

said Thursday the U.S. economy remains some distance from where it needs to be for the Federal Reserve to pull back on its $120 billion a month in bond-buying stimulus.

Data released earlier this week suggests other areas of the U.S. economy are improving. The Institute of Supply Management’s index of manufacturing activity came in at 61.2 in May—up from 60.7 in April and above analysts’ expectations of 60.5. On Wednesday, the ISM said its index of services activity rose to a record high 64 in May, from 62.7 in April. Economists surveyed by The Wall Street Journal had expected 62.5. 

In both cases, readings above 50 suggest an expansion of economic activity.

Friday’s decline stalls recent gains in the dollar, which recently hit its highest level since May 13. Analysts and investors expect the dollar to weaken despite improving U.S. economic data, as other countries get a grip on the coronavirus, roll out vaccination programs and reopen their economies, making the U.S. currency less attractive on a relative basis.

“After trading on a more solid footing ahead of [Friday’s] data release, we think the softer set of U.S. employment data should help take some of the wind out of the [dollar’s] sails,” said TD Securities analysts in a note.

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com

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