NEW YORK: Longer-dated US Treasury yields edged up on Friday after April’s US employment report showed signs of wage growth for American workers, an early sign that inflation may finally be strengthening and could spur the US Federal Reserve toward additional interest rate increases.
Yields of most maturities initially fell to a nearly four-week low after the widely followed report showed US employers added the smallest number of jobs in seven months.
They retraced that move as investors noted the wage data, which showed average hourly earnings rose 0.3 percent in April after a weak reading for March. That countered the headline figure, which showed only 160,000 new jobs were added last month, the smallest increase since September and more than 40,000 fewer than economists’ expectations.
“The initial move up was clearly a knee-jerk reaction to the low print on payrolls and maybe looking into the household data,” said DRW Trading market strategist Lou Brien. “But the wage data was a little bit better than expected, and if anything, that relates back to the bond market more directly than does the payroll data.”
Rising wages could help boost US inflation, which has been lagging even as employment has increased. The Fed has been concerned that inflation has been stuck below its 2 percent target.
The central bank raised rates in December for the first time in nearly a decade. Futures markets predict it is likely to hold off on a second increase when it next meets in mid-June.
Yields have fallen since the Fed announced on April 27 that it was leaving rates unchanged.
Benchmark 10-year yields, which move in the opposite direction of the bond’s price, fell to 1.705 percent earlier on Friday, their lowest since April 11. Since reversing that move, though, the price was last down 4/32, with the yield ticking up to 1.757 percent.
Some bond analysts still think the mixed signals from the jobs report mean the Fed is unlikely to be in a hurry to act.
“I think the Fed will likely look at this as being not a terrible number,” said Tony Bedikian, head of global markets for Citizens Bank in Boston.
“It does provide a little breathing room for them to sit back and wait for more data to reinforce their next move.”
Copyright Reuters, 2016
Courtesy : BRecorder