May 3, 2019 / 1:24 PM / 2 months ago

REFILE-TREASURIES-Yields dip after wage inflation disappoints

 (In first paragraph, corrects typo, please read "1-1/2-week
highs")
    * Employers added 263,000 jobs in April 
    * Wage inflation muted at 0.2% during the month
    * Traders had prepared for stronger jobs gains

    By Karen Brettell
    NEW YORK, May 3 (Reuters) - U.S. Treasury yields fell from
1-1/2-week highs on Friday as government data showed strong jobs
growth in April matched what many traders had expected, while
wage gains were muted.
    Nonfarm payrolls increased by 263,000 jobs last month, amid
gains in hiring nearly across all sectors, the U.S. Labor
Department reported.  Economists polled by Reuters had forecast
nonfarm payrolls rising by 185,000 jobs last month.
    Still, yields fell after the jobs release since many traders
had priced in more bullish job gains than economists, helping
bond yields rise over the past three days.
    “There’s been some liquidations going on for the last couple
of days based on the perception that this number’s going to be a
strong data set for the most part," said Tom di Galoma, a
managing director at Seaport Global Holdings in New York.
    "My sense is that buyers are going to be around just because
the data wasn’t so out of whack and we’ve gotten back to levels
where accounts want to buy the market,” he said.
    Wage inflation was also muted with average hourly earnings
rising six cents, or 0.2% in April after rising by the same
margin in March. That kept the annual increase in wages at 3.2%.
            
    Average hourly earnings "were disappointing,” said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York. “In light of the Fed's emphasis on inflation at this
point in the cycle, we're not surprised to see the Treasury
market is slightly higher following the data release.”
    Benchmark 10-year notes             were last up 3/32 in
price on the day to yield 2.543 percent, down from 2.552 percent
on Thursday.
    Yields have risen since Federal Reserve Chairman Jerome
Powell on Wednesday gave a more bullish take on inflation and
the economy than expected.
    Powell said the drop in inflation this year may be due to
transitory factors and that economic and job growth has been
stronger than the committee expected.             
    Interest rate futures traders see a reduced chance of a rate
cut this year after Powell's comments. They are now pricing in a
50 percent chance of a rate cut by December, down from 64
percent before the Fed meeting statement, according to the CME
Group’s FedWatch Tool.
    Given the focus on inflation, the next major catalyst that
will give clues on Fed policy will be consumer price inflation
data due next Friday.

 (Editing by David Gregorio)
  
 
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