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TREASURIES-U.S. yields fall from highs after mixed jobs report

·3 min read

(Updates through U.S. afternoon trading) By David Randall NEW YORK, Sept 2 (Reuters) - Yields of short-term U.S. Treasuries fell from multiyear highs on Friday after a closely watched employment report showed unemployment rising and job growth slowing in August, as many on Wall Street had expected. Nonfarm payrolls increased by 315,000 jobs last month, down from a surging 526,000 in July, the Labor Department said. The unemployment rate increased to 3.7% from a pre-pandemic low of 3.5% in July. Economists polled by Reuters had forecast payrolls increasing 300,000. Estimates ranged from as low as 75,000 to as high as 450,000. The jobs data came a week after Federal Reserve Chair Jerome Powell said the U.S. economy may face a painful period of slow economic growth and rising unemployment as the central bank continues an aggressive pace of interest rate hikes to curtail inflation, which is running near 40-year highs. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 11.8 basis points at 3.404% after hitting 15-year highs the day before. The yield on 10-year Treasury notes was down 6.6 basis points to 3.199%, one day after hitting two-month intraday highs, while the yield on the 30-year Treasury bond was down 2.7 basis points to 3.347%. "The basic message is the labor market might be starting to cool and the Fed might not have to move so aggressively," said David Page, head of macroeconomic research at Axa Investment Managers. Market participants now expect a 58% probability that the Fed will raise benchmark rates by 75 basis points at its meeting on Sept. 21, down from a 75% chance a day ago, according to CME's FedWatch tool. Expectations for a 50 basis points increase are now up to 42% from 25% on Thursday. The gains in the job market in August will likely keep the Fed on its current path, said Rick Rieder, chief investment officer of global fixed income at BlackRock. "The door is still wide open for the Fed to keep moving, and we also think this keeps the potential for a 75-bps hike at the September meeting still on the table," he said. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -20.5 basis points. September 2 Friday 2:49PM New York / 1849 GMT Price Current Net Yield % Change (bps) Three-month bills 2.8475 2.9068 -0.047 Six-month bills 3.2525 3.3513 -0.022 Two-year note 99-182/256 3.4017 -0.120 Three-year note 99-32/256 3.4399 -0.109 Five-year note 99-48/256 3.3031 -0.107 Seven-year note 99 3.2864 -0.087 10-year note 96-52/256 3.1988 -0.066 20-year bond 96-136/256 3.6206 -0.029 30-year bond 93-120/256 3.347 -0.027 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 36.25 1.00 spread U.S. 3-year dollar swap 14.25 0.50 spread U.S. 5-year dollar swap 7.25 0.50 spread U.S. 10-year dollar swap 9.00 0.25 spread U.S. 30-year dollar swap -29.50 -0.25 spread (Reporting by David Randall; Editing by Andrea Ricci, Mike Harrison and Jonathan Oatis)