(Corrects 7th paragaph to say lower inflation, not rate hikes, preserves the value of long-dated bonds’ interest rate payouts)
* U.S. Aug. non-farm payrolls increase 173,000
* July payrolls upwardly revised to 245,000
* Data overall supports perception of September Fed rate hike
* Uncertainty over Fed liftoff timing spurs volatility
By Sam Forgione
NEW YORK, Sept 4 (Reuters) - U.S. medium- and long-dated Treasuries prices rose on Friday, while short-dated prices were slightly lower, after U.S. monthly employment data supported the perception that the U.S. Federal Reserve will hike interest rates later this month.
Nonfarm payrolls increased 173,000 last month as the manufacturing sector lost the most jobs since July 2013, the Labor Department said on Friday. It marked a slowdown from July’s upwardly revised gain of 245,000, was the smallest rise in employment in five months, and was below an expected 220,000.
Indicating that the slowdown in job growth was likely not reflective of the economy’s true health, payrolls data for June and July were revised to show 44,000 more jobs created than previously reported. In addition, average hourly earnings increased 8 cents, the biggest rise since January, and the workweek rose to 34.6 hours.
Analysts said the strong average hourly earnings and workweek increase supported views of a rate hike at the Fed’s policy meeting this month, despite the weaker-than-expected August payrolls data.
“They probably raise rates just because they’ve been wanting to get off the zero bound, but I do think it’s one of the closer calls,” said Marc Bushallow, director of fixed income at Manning & Napier in Rochester, New York.
U.S. two-year notes were last down 1/32 in price to yield 0.72 percent, from a yield of 0.7 percent late Thursday, while 30-year prices were last up 29/32 to yield 2.9 percent after yielding 2.95 percent late Thursday.
Analysts said the “curve flattening” trade showed some selling pressure on short-dated notes since they are most vulnerable to Fed rate hikes, while long-dated prices rose since the lower inflation expected to come with rate hikes is beneficial to longer-dated Treasuries. Lower inflation preserves the value of those bonds’ interest rate payouts.
“If the Fed hikes in this environment, there are implications for lower inflation in the long run,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
Treasuries prices were volatile, however, with prices quickly paring gains and retracing them. Analysts said the data, while overall supporting a September Fed rate hike, created some uncertainty about the timing of the Fed’s liftoff.
“Reasonable traders could disagree about the Fed implications of today’s data,” Lebas said.
Benchmark 10-year Treasury notes were last up 7/32 in price to yield 2.15 percent, from a yield of 2.17 percent late Thursday. (Reporting by Sam Forgione)