The 10-year yield rose to 5.28% in a week of 29,000 new jobs
Employers added 29,000 jobs in September, and the 10-year Treasury yield still closed at 5.28% on Friday, October 2, up 11 basis points on the week.
Key takeaways
The United States added 29,000 jobs in September. Economists surveyed by Dow Jones had expected 84,000. The 10-year Treasury yield still finished the week at 5.28%, up 11 basis points, a hundredth of a percentage point each.
Yields fell when the report came out at 8:30 a.m. New York time on Friday. They turned higher. Friday's close was 4 basis points above Thursday's 5.24%.
The rise came before Friday
On Monday the 10-year yield rose 7 basis points, to 5.24%. The 2-year rose 11, to 4.92%. That was before the week's growth, inflation and jobs reports.
By Wednesday the 10-year was at 5.29%. On Thursday it was back at 5.24%. The 2-year had fallen 14 basis points from Monday's high, to 4.78%, under the prior Friday.
The gap between the 10-year and the 2-year ended at 45 basis points, 9 wider than a week before. Monday had made that gap smaller, because the 2-year jumped more than the 10-year. It widened only after the 2-year fell back and the 10-year did not.
Longer Treasuries rose more in yield.
The Federal Reserve's target range is 3.75% to 4%, after a quarter-point rise on Wednesday, September 16. The 2-year finished 83 basis points above the top of that range, and only 2 basis points higher on the week. Futures tied to the Fed's policy rate put an October increase at about 25% on Friday, and a December increase still above 75%.
The fund that holds Treasuries coming due in more than 20 years, TLT, fell 2.3% in price, after a 3.0% drop the week before.
TLT fell 2.3% on the week
Hiring slowed beside firmer spending
September's pace was close to the recent one. Average monthly payroll growth over the prior 12 months was 45,000. The unemployment rate was 4.2%, inside the 4.1% to 4.3% range it has held since March. Revisions took a combined 60,000 jobs off July and August. July is now a loss of 10,000.
Spending and the growth figures did not weaken with hiring. On Wednesday the Bureau of Economic Analysis raised its third estimate of second-quarter growth by 0.7 percentage points, to 2.2% at a full-year pace. The same morning, real consumer spending rose 0.6% in August, and real disposable income was unchanged. Prices in that spending report were 3.4% higher than a year earlier, and 3.0% without food and energy.
Manufacturing expanded for a ninth straight month, the Institute for Supply Management said, with its survey at 54.5, from 54.6 in August. Its measure of what firms pay for materials jumped 6.8 points, to 77.9. That measure tracks how widely costs are rising. It is not an inflation rate.
Of the 10-year's 11 basis point rise, 9 were a higher real yield, the yield left after expected inflation. The real yield finished at 2.92%. Expected inflation, read from ordinary Treasuries against inflation-protected ones, rose 2 basis points, to 2.36%.
Nine of the 11 basis points were real yield
It was the second week in a row that almost all of the rise was real. Brent crude closed at $102.25, down 2% on the week.
European Central Bank President Christine Lagarde said on Monday that the bank sees higher inflation ahead but no sign yet that it is becoming embedded, meaning built into other prices. It does not react to energy prices themselves, she said, only if those prices risk sticking in inflation. On Wednesday, Isabel Schnabel, a member of the bank's Executive Board, said raising rates twice since June "was an appropriate policy decision."
The extra yield on lower-rated US corporate bonds rose much more than the extra yield on higher-quality ones. Through Thursday it had widened by 31 basis points, to 3.24%, from 2.93% on Friday, September 25. The higher-quality gap widened by 5 basis points, to 0.86%. The fund of those lower-rated bonds, HYG, fell 1.2% in price on the week. It did not bounce on Friday.
Gold fell and the dollar rose, on different days. Gold fell 3.7%, to $4,162.3. The fund that holds physical gold, GLD, fell 3.4%. The drop came on Monday, with the first jump in yields, and later sessions did not reverse it. The dollar index rose 0.95%, to 101.93. The fund that rises when the dollar rises, UUP, rose 0.9%. Its largest gain was Thursday, a day yields fell.
The fund that tracks the S&P 500, SPY, slipped 0.2% on the week and rose 0.7% on Friday. That Friday gain did not show up in TLT. The fund of the S&P 500's technology stocks, XLK, rose 1.8%. The fund of its health-care stocks, XLV, fell 2.6%.
BlackRock Investment Institute said on Monday that it is underweight long US Treasuries.
"We see investors wanting more compensation for holding long-term bonds amid persistent inflation and high debt loads."
Daniel Morris, Nathalie Benatia and Chi Lo of BNP Paribas Asset Management, writing on Tuesday, called market expectations for the policy-rate peak "overly aggressive." They cited an expected Fed peak of 4.50% to 4.75%.
Our read is that the week kept those arguments apart. Friday's report left an October rate increase unlikely, and a December increase still likely. It did not bring the long yield down.
The 10-year yield is higher than it was a week ago, and the price of long Treasuries is lower. The jobs report did not set that result.
ETFs in this story
Frequently asked questions
Did the jobs report push the 10-year yield up?
Yields fell when the report came out, then turned higher, and the week's rise had started on Monday.
How many jobs had economists expected?
Economists surveyed by Dow Jones had expected 84,000.
Was the higher yield about expected inflation?
Nine of the 11 basis points were a higher real yield, and expected inflation rose 2 basis points, to 2.36%.
What happened to long Treasury prices?
The fund that holds Treasuries coming due in more than 20 years fell 2.3% in price, after a 3.0% drop the week before.
