US Treasury yields fall, curve flattens after jobs data

CHICAGO: U.S. Treasury yields tumbled and the yield curve flattened on Friday after job gains in May fell short of expectations, calming fears that a roaring economy could lead to a quicker tightening of monetary policy.

The benchmark 10-year yield, which had its biggest basis-point drop since April 15, fell to its lowest level since May 26 at 1.557%. It was last 6.8 basis points lower at 1.5585%. The 30-year yield slid as low as 2.233% and was last down 6.1 basis points at 2.2341%.

The closely watched yield curve between two- and 10-year Treasury notes flattened with the gap between the yields at its lowest since May 26. It was last 5.71 basis points flatter at 140.78 basis points.

The U.S. Labor Department reported that nonfarm payrolls increased last month by 559,000 jobs, which was below the 650,000 job gains economists polled by Reuters had forecast. Data for April was revised slightly higher to show payrolls rising by 278,000 jobs instead of 266,000 as previously reported. The unemployment rate fell to 5.8% from 6.1% in April.

“The numbers were decent, but they weren’t blow-out numbers,” said Andrew Richman, senior fixed income strategist at Sterling Capital Management, pointing to the possibility of a huge job gain after Thursday’s ADP National Employment Report showed private payrolls increased by 978,000 jobs in May.

Gennadiy Goldberg, interest rate strategist at TD Securities in New York, said the government’s jobs report was “not quite good enough” to change the outlook for the U.S. Federal Reserve to taper its bond purchases or hike rates, which should keep rates relatively range-bound in the short term.

Meanwhile, the amount of money flowing into the Fed’s reverse repurchase facility rose from $479 billion on Thursday to $483 billion on Friday, just under a record $485 billion reached on May 27. A flood of cash is pushing down short-term rates and fueling expectations the Fed will take action to maintain its key policy rate.

Looking ahead to next week, the Treasury Department will hold auctions for $58 billion of three-year notes on Tuesday, $38 billion of 10-year notes on Wednesday, and $24 billion of 30-year bonds on Thursday.

“On the whole, I think things will go decently, but if rates keep going down here it’s just going to be a little bit harder for that to happen,” Richman said.

The two-year Treasury yield was almost a basis point lower at 0.1507%.

The yield on 30-year Treasury Inflation-Protected Securities closed at -0.077%, its lowest closing point since mid-February, according to Tradeweb.