Bond Report: 10-year Treasury note knocks on door of 1.6% in climb to 4-month high, even as jobs data comes in weak

United States

Yields for long-dated U.S. government debt were trading at highs not seen since early June on Friday, and the 2-year Treasury touched a March 2020 high, as a selloff in bonds that commenced in late September proceeded apace, ahead of the monthly Labor Department employment report.

What yields are doing
  • The 10-year Treasury note yield TMUBMUSD10Y, 1.576% was at 1.582%, compared with 1.570% at 3 p.m. Eastern Time on Thursday, which represented its highest rate since June 7.
  • The 2-year Treasury note yield TMUBMUSD02Y, 0.309% was at 0.318%, versus 0.307% a day ago, representing a 52-week high for the note and its highest since March 25, 2020.
  • The 30-year Treasury bond yields TMUBMUSD30Y, 2.141% 2.14%, compared with 2.132% on Thursday, which was its highest rate since June 25, according to Dow Jones Market Data.
  • For the week, the 2-year yield has risen 5.4 basis points, while the benchmark 10-year Treasury has gained 11.8 basis points and the 30-year, or long bond, has advanced 10.3 basis points, FactSet data show.
What’s driving the market?

Eyes are focused on Friday’s U.S. employment report for September which is likely to be a catalyst for fixed-income markets as they end a volatile week on Wall Street.

Economists polled by The Wall Street Journal expect the U.S. added 500,000 new jobs in September when data is released at 8:30 a.m. Eastern Time, more than double the gains from August. Estimates among economists surveyed by Econoday range from 250,000 to 600,000 gains on the month, with the data provider also showing a lower headline consensus expectations of 475,000 jobs pointing to a decline to 5.1% in unemployment.

Even a tally on the lighter side of the ledger, however, may compel the Federal Reserve to announce in November plans to scale back pandemic-era stimulus, which has seen the central bank make monthly purchases of $ 120 billion in Treasurys and mortgage-backed securities.

The prospect of the Fed tapering its bond purchases has played a considerable part in the recent advance in bond yields but investors may also look to see how much wages have increased as an indicator of inflation.

Average hourly wages are forecast on average to rise 0.4% in September, down from 0.6% in the prior month and 4.6% on a year-over-year basis, compared with 4.3% in the 12 months ended in August. Average hourly wages had been rising at a pre-pandemic average of 3% annually. Higher wages reflects the willingness of companies to pay more at a time when labor is scarce.

The labor market report comes as Washington delayed a federal default after a Senate voted late Thursday to raise the government’s debt ceiling into December. It is a brief reprieve as lawmakers must head back to the bargaining table before the end of the year.

In other data, investors will watch for a preliminary read on wholesale inventories, which represents the value of sales made and inventories held by merchant wholesalers.

What analysts are saying

“Yields are higher with the 10-year note topping the 1.6% in overnight trading. The Dollar index is steady to fractionally lower ahead of todays data. While we anticipate stocks to respond favorably to a strong employment report, we think higher than expected wages could cap a strong move,” wrote Peter Cardillo, chief market economist at Spartan Capital Securities, in a daily note. “We see yields inching higher through the quarter, with the 10-year moving towards the 1.85% area,” he said.