U.S. Treasury yields rose Friday morning after the May jobs report showed surprising resilience in the American labor market despite rising interest rates and heightened recession fears, forcing traders to price in an increased risk of another 25-basis-point interest rate hike at the Federal Reserve’s June meeting.
What yields are doing
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.420%
advanced 7 basis points at 4.403%, versus 4.339% at 3 p.m. Eastern on Thursday. -
The 10-year Treasury note yield
TMUBMUSD10Y,
3.639%
rose 2 basis points to 3.629%, compared with 3.607% Thursday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.845%
was little changed at 3.837%, compared with 3.833% late Thursday.
Market drivers
The U.S. economy created 339,000 new jobs in May, way above forecasts, underscoring the resilience of the economy in the face of rising borrowing costs. However, the unemployment rate, meanwhile, rose to 3.7% from 3.4%, the Labor Department reported on Friday.
Fed-funds futures traders priced in a 33.3% probability the central bank will lift its benchmark interest rate by 25 basis points at its June 13-14 policy meeting, according to the CME FedWatch tool. That’s up from 20.4% on Thursday afternoon.A week ago, the market had priced in a roughly 64% probability of a quarter percentage point rate hike.
Fed officials this week have indicated that they may hold off on raising rates at their June meeting while reserving the ability to lift at subsequent meetings if warranted.
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Earlier, fears of a U.S. debt default were put to bed late Thursday after the Senate voted to raise the debt-ceiling, sending the legislation to President Joe Biden for his signature. Treasury Secretary Janet Yellen had warned that the government could run out of the ability to pay its bills as early as June 5 without action.
What analysts say
The labor report “represents another data point that could prove the difference between the Federal Reserve leaving rates unchanged at its next meeting on June 14, or lifting them by another 25 basis points,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.
“Our view is that rates will be kept stable, but clearly, we have to hope that data such as payrolls are not so alarming that it spooks the Fed into action,” he wrote.
