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Treasuries Rally on Latest Jobs Data, Lowering Yields -- Barrons.com

Barron's · 01/06/2023 11:37
By Lawrence C. Strauss

Treasuries across the yield curve were rallying Friday morning following the release of data that showed slowing growth in wages and employment.

The yield on the 10-year Treasury note was at 3.59%, down sharply from the 3.72% it closed at on Thursday. Bond prices and yields move inversely.

Reasons for investors bidding up longer term Treasuries, boosting their prices, include viewing them as a relatively safe option in tough economic times. The bond market also is keeping close tabs on how high the Federal Reserve will push short-term rates to tame inflation, and how long it will keep them elevated.

Jeffrey Roach, chief economist for LPL Financial, said in an email that the December employment report contained good and bad news.

On the plus side, he noted, "consumer incomes will likely support spending, despite inflation pressures" but said "The bad news for markets is the Federal Reserve will continue to tighten monetary policy."

Andrew Hunter, senior U.S. economist at Capital Economics, observed in a note that the gain of 223,000 jobs and decline in the unemployment rate to 3.5% detailed in the report "will, at face value, do little to ease the Fed's concerns about resilient core services inflation."

But he added that "the softer gain in average hourly earnings suggests wage growth is nevertheless slowing" and that "the labour market will weaken more markedly this year."

The wage data for November was revised downwards, showing a 0.4% climb over the month, for a 4.8% annual pace. In December, the gains slowed further to an increase of 0.3% over the month and a 4.6% annual rate.

A less robust jobs market would be welcome news for the Fed, which raised short-term rates seven times last year. Investors are now looking toward a meeting of the bank's policy committee scheduled for Jan. 31 and Feb. 1.

The authors of Morgan Stanley Research note expect the Fed to boost rates by 25 basis points, a quarter of a percentage point, at that meeting.

But "continued robust jobs growth increases the risks of an extension of the tightening cycle beyond the next meeting, in line with our interpretation of the latest [Federal Open Market Committee] minutes," the note said.

Elsewhere in the Treasury market, two-year Treasury notes were yielding 4.29%, down from 4.451% at Thursday's close.

The three-year Treasury had an even bigger move. Its yield was at 4.02%, down about 20 basis points. The 30-year Treasury bond's yield was at 3.69%, down about 10 basis points.

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com

(END) Dow Jones Newswires

January 06, 2023 11:37 ET (16:37 GMT)

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