10-year Treasury yield logs largest weekly drop in a month, even after post-jobs report spike

Treasury yields rose sharply Friday as a round of solid economic data from U.S. factories and households helped to pare back the bond-market’s midweek rally, after the Federal Reserve signaled a more dovish policy path.

The 10-year Treasury note yield
TMUBMUSD10Y, +0.00%
was up 5.9 basis points to 2.690%, marking its biggest daily jump since Jan. 4. Friday’s action helped to trim the benchmark maturity’s weeklong decline to 6.3 basis points, its largest decline in four weeks.

The 30-year bond yield
TMUBMUSD30Y, +0.00%
 was up 2.7 basis points to 3.030%, paring its weeklong fall to 3.2 basis points. The 2-year note yield
TMUBMUSD02Y, +0.00%
climbed 5 basis points to 2.508%, cutting its weeklong decline to 9 basis points, its largest such move in more than a month. Bond prices move in the opposite direction of yields.

See: Why the stock market’s direction will depend more on data, less on Fedspeak after dovish pivot

The nonfarm-payrolls report for January showed the U.S. economy added 304,000 jobs, well above the 172,000 reading expected from economists polled by MarketWatch. The unemployment rate rose to 4%, and average hourly earnings were up 0.1%.

The report indicated that there was plenty of slack remaining in the labor market, with wage gains subdued as the labor-force participation rate ticked higher to 63.2%, its highest since Sep. 2013.

“There’s just a lot of good news from the consumer right now, I think there are more risks to upside surprises than to the downside,” Andrew Severino, global head of fixed income at Nikko Asset Management, told MarketWatch.

Economists said, however, that the labor market’s strength won’t push the Fed to reverse course after it signaled a more dovish stance at its two-day meeting, saying that it would pursue a more cautious approach to future rate increases. Investors now think it’s unclear if the central bank will still push forward with even one or two rate increases this year, and that the central bank may struggle to signal further rate hikes if muted inflation perks up.

“If they do decide the data has remained robust, and we need to hike, they’re going to have a communications challenge. After sending out dovish signals, walking back to another rate hike will be tough for them,” said Omair Sharif, senior U.S. economist for Société Générale.

Analysts say the U.S. economic landscape has demonstrated both signs of strength and weakness, with U.S. factories ailing under the pressure of trade tensions, and unemployment hovering around a multidecade low. For now, U.S. industrial growth remains solid, with the Institute for Supply Management’s manufacturing gauge in January bouncing back to 56.6% in January from 54.3% in the prior month. A reading of at least 50% signals improving conditions.

Read: Softer ISM data won’t hold back stocks from ‘Goldilocks’ rally, says Morgan Stanley

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