October 5, 2018 / 3:02 PM / 2 months ago

TREASURIES-Yields up on solid jobs report, despite headline number miss

 (Recasts, adds analyst quote, updates table, yields)
    By Kate Duguid
    NEW YORK, Oct 5 (Reuters) - Longer-dated U.S. Treasury
yields rose on Friday after the Labor Department reported that
U.S. job growth slowed in September and wages rose steadily,
suggesting modest inflation. 
    The 30-year Treasury bond reached a four-year
high of 3.396 percent, up 4.5 basis points from late Thursday.
The benchmark 10-year yield rose to 3.233 percent,
up 3.8 basis points from late Thursday. 
    Longer-dated yields, which reflect traders' views of the
overall health of the economy, rise on strong data. Robust
growth means buyers have investment options that are
higher-yielding than Treasuries; prices on the safe-haven
security rise in times of crisis. 
    "We take it as a strong report that doesn't change the
landscape and that should allow the 10-year yield to creep up to
3.25 percent," said Matt Toms, chief investment officer of fixed
income at Voya Investment Management.  
    Nonfarm payrolls increased by 134,000 jobs last month, the
fewest in a year, likely as Hurricane Florence depressed
restaurant and retail jobs. The Labor Department's report also
showed a steady rise in wages, implying a rise in inflation,
which could ease concerns about the economy overheating and keep
the Federal Reserve on a path of gradual interest rate
increases.
    "The report was solid even though the headline did miss. The
unemployment rate fell for the right reasons and the wage number
was strong. What was odd was the rate-market reaction to this,"
said Priya Misra, head of global rates strategy at TD
Securities.
    The immediate market reaction following the announcement was
a drop in yields, before they whipsawed to hit session highs.
    Misra said the surprising reaction was the result of a
technical move similar to the one that factored into a 48-hour
sell-off in Treasuries this week, driving yields across
maturities to multi-year highs. "It seems a lot like the price
reaction earlier this week, as it is being driven by Treasuries,
not swaps. It’s met with a steeper curve, and it’s real-rate
driven," she said. 
    Yields were up in mid-morning trade, with the largest
changes at the long end of the curve, after they had fallen 
from session highs hit after the data release. 
    The yield curve was modestly steeper. Spreads between two-
and 10-year yields and between five- and 30-year
yields were up by less than a basis point, last
at 31.9 basis points and 31.10 basis points respectively.
    
    October 5 Friday 10:47AM New York / 1447 GMT
                               Price                  
 US T BONDS DEC8               137-13/32    -0-16/32  
 10YR TNotes DEC8              117-176/256  -0-44/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1775       2.2193    -0.003
 Six-month bills               2.3575       2.4183    0.004
 Two-year note                 99-184/256   2.8973    0.017
 Three-year note               99-82/256    2.9933    0.023
 Five-year note                99-20/256    3.0761    0.024
 Seven-year note               98-244/256   3.1684    0.028
 10-year note                  97-20/256    3.2233    0.028
 30-year bond                  92-204/256   3.3851    0.031
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.75        -0.25    
 spread                                               
 U.S. 3-year dollar swap        15.50         0.00    
 spread                                               
 U.S. 5-year dollar swap        11.25         0.00    
 spread                                               
 U.S. 10-year dollar swap        4.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -10.50        -0.75    
 spread                                               
 
 
    
 
     
    

 (Reporting by Kate Duguid; editing by Steve Orlofsky and Dan
Grebler)
  
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