Yields extend march higher after jobs report amid brutal week for bond bulls

Treasury yields extended an assault on multiyear highs early Friday after a key jobs report showed tightening labor markets were leading to wage gains—a bearish development for bond bulls.

See: Unemployment rate falls to 49-year low of 3.7%

The Bureau of Labor Statistics reported the U.S. had added 134,000 jobs in September, below the 168,000 jobs expected from economists polled by MarketWatch. July’s and August’s numbers were increased. The unemployment rate fell to 3.7%, its lowest level since 1969. While, the average hourly earnings rose 0.3%, after a stellar 0.4% gain the previous month.

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The 10-year Treasury note yieldTMUBMUSD10Y, +1.11% was up 2.3 basis points to 3.218%, near its seven-year intraday high at 3.229%. The 30-year bond yieldTMUBMUSD30Y, +1.02% rose 3.2 basis point to 3.384%, but remained below its intraday four-year high of 3.391%, while the 2-year note yieldTMUBMUSD02Y, +1.30% rose 1.7 basis points to 2.893%, its highest since 2008. Bond prices move in the opposite direction of yields.

Yields began to run higher earlier in the week after better than expected economic data on Wednesday sent investors fleeing from U.S. government paper. Adding to the yield climb, the official jobs report showed an economy that was continuing to eke out higher wages, and won’t dissuade the Federal Reserve from raising rates at its current pace, with likely another increase in December.

“We see this as a continuation of steady march higher in the employment market, and nothing to stand way in the market. This is not going to change Powell’s view,“ said Matt Toms, chief investment officer of fixed income at Voya Investment Management.

Economist said the weaker than expected showing from September’s employment data could be due to effects of Hurricane Florence.

“In short, payrolls were a bit weaker than generally expected in September, but there has been a clear tendency for the September data to be underreported initially and revised up later. Florence appears to have caused some weakness as well,” wrote Jim O’ Sullivan, chief U.S. economist at High Frequency Economics.

Read: Here are the stocks most sensitive to rising bond yields

In other data, the trade deficit for August widened to $53.2 billion. Trade concerns have diminished after the U.S. and Canada agreed to a revamp of the North American Free Trade Agreement, turning investor’s attention to tensions between Washington and Beijing. As the U.S. closes one front in its effort to revise trade deals across the world, investors cited the breakthrough for diminishing a source of uncertainty and lifting demand for haven assets like government paper.

“You’ve had a narrowing of the trade conflicts towards China and that decreases the breadth of trade uncertainty and in our mind, it pushes the market to interpret the administration’s trade policy as more bark and less bite,” said Toms.

On the Fed front, Dallas Fed President Robert Kaplan will speak for the third time this week at 12:30 p.m., after doubling down on the central bank’s gradual rate-increase strategy. About 15 minutes later, Atlanta Fed President Raphael Bostic will give a speech.

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