Bond yields continue to slip ahead of key jobs report

Bond yields declined on Friday, ahead of labor market data that could show whether the Federal Reserve will be able to slow down the pace of rate hikes.

What’s happening
  • The yield on the 2-year Treasury

    declined 7 basis points to 4.19%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury

    fell 2 basis points to 3.51%.

  • The yield on the 30-year Treasury

    fell 1 basis point to 3.62%.

What’s driving markets

Yields dropped sharply on Thursday after a key manufacturing report signaled a contraction in activity, while a measure of core inflation was softer than forecast. The Institute for Supply Management’s manufacturing index reached the lowest level since May 2020.

The Labor Department is expected by economists to report 200,000 new jobs were created in November, which would be the weakest showing in nearly two years. Average hourly pay is expected to ease to a 0.3% monthly rate.

Strategists at NatWest say the move into bonds has been too strong, noting the Fed is still hiking, there could be a reacceleration in core CPI, and the easing in financial conditions is approaching the easy levels seen in August before the Fed started pushing back.

“So in this light, we favor higher 10 year yields from here, targeting 3.90%-4% over the next couple of weeks. Not a massive move, but it also fits with our view that U.S. rates markets will be choppy within a volatile range for the next month or two, so tactical positioning and flexibility around that will be the approach to take.”

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