Yields jump after stronger than expected jobs gains

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NEW YORK — U.S. Treasury yields jumped

after data on Friday showed that employers added more jobs than

expected to their payrolls in June, boosting expectations that

the Federal Reserve will hike rates by another 75 basis points

this month.

Nonfarm payrolls increased by 372,000 jobs last month,

according to the Labor Department’s closely watched employment

report. Economists polled by Reuters had forecast 268,000 jobs

added last month.

“I don’t think that there’s any debate now that the Fed will

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be raising 75 basis points,” said Tom di Galoma, managing

director at Seaport Global Holdings in New York.

Atlanta Fed President Raphael Bostic, until recently among

the central bank’s most dovish policymakers, on Friday said he

“fully” supports another 75 basis points hike at the Fed’s July

26-27 meeting.

Investors have been increasingly concerned that the U.S.

central bank will tip the economy into a recession as it

aggressively hikes interest rates in a bid to stem soaring

inflation.

Friday’s jobs figure shows that a slowdown is not apparent,

at least near-term.

“Wages aren’t accelerating, but based on the volume of job

openings and payroll gains, the Fed probably thinks the labor

market is still too hot to handle,” said Brian Jacobsen, senior

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investment strategist at Allspring Global Investments.

Consumer price data due next week is also likely to show

that inflation pressures remain elevated, with economists

expecting an annual increase of 8.7% in June.

Fed funds futures traders now expect the Fed’s benchmark

rate to peak at 3.60% in March, compared with pricing on

Thursday afternoon for a top of around 3.48%. It is currently

1.58%.

The federal funds rate will need to rise as high as 3.5% by

the end of the year but what follows after that is far less

certain, New York Fed President John Williams said on Friday.

Benchmark 10-year yields rose to 3.099%, up from around

2.989% before the data. Two-year yields jumped to 3.115%, from

around 3.001%.

The two-year, 10-year part of the Treasury yield curve was

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at minus two basis points. The curve initially deepened its

inversion to seven basis points, before steepening again.

This part of the yield curve inverted on Tuesday for the

first time in three weeks. An inversion is seen as a reliable

indicator that a recession will follow in one to two years.

Yields could face pressure to move higher next week when the

Treasury Department sells $95 billion in coupon-bearing supply.

This will include $43 billion in three-year notes, $33 billion

in 10-year notes and $19 billion in 30-year bonds.

July 8 Friday 2:41PM New York / 1841 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 1.91 1.9455 -0.002

Six-month bills 2.5825 2.6522 0.046

Two-year note 99-200/256 3.115 0.074

Three-year note 99-56/256 3.1558 0.091

Five-year note 100-130/256 3.1387 0.085

Seven-year note 100-130/256 3.1681 0.087

10-year note 98-28/256 3.099 0.091

20-year bond 95-220/256 3.5421 0.083

30-year bond 92-116/256 3.2729 0.077

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 27.75 1.25

spread

U.S. 3-year dollar swap 9.25 0.00

spread

U.S. 5-year dollar swap 3.00 0.00

spread

U.S. 10-year dollar swap 8.75 0.00

spread

U.S. 30-year dollar swap -25.75 0.25

spread

(Additional reporting by Chuck Mikolajczak in New York:

Editing by Mark Heinrich and Jonathan Oatis)