US Treasury prices stalled and settled mixed, slightly higher Friday following the March employment report, with the long bond holding a minor lead while 2-year ended a touch lower. Trade had slowed to a crawl in the latter part of the session after a brief blowout on the stronger payrolls headline, but the impact of the report was muted by a disappointing wage growth input.
The lack of concrete news on the US-China trade talks and the latest on the UK’s request for a Brexit exit delay added support to bonds. A run of Treasury supply in the week ahead was seen as providing some pressure.
There was a flurry of activity on the data, sending prices to the lowest levels since March 22 before reversing at near key technical levels and spending the remainder of the session meandering quietly higher. The 10-year settled just through the pivotal 2.50% point.
The 30-year yield went out near 2.91% from a 2.906% low, 2.952% high and 2.919% close Thursday. The 10-year yield settled near 2.502% versus a 2.494% low, 2.544% high and 2.51% close. The 5-year yield went out near 2.3138% from a 2.303% low, 2.332% high and 2.317% Thursday. The 2-year yield settled near 2.345% from a 2.333% low, 2.374% high and 2.339% close.
The curve trade flattened with the 2- and 10-year yield differential near 15.7 from 17.1 Thursday while the 5- and 30-year yield spread was squeezed to near 59.7 from 60.1.
CME Group fed fund futures lowered the probability of a minimum 25 basis point rate cut by December to near 52.3% versus 55.5% Thursday, 64.5% March 29 and zero March 5.
The market noted the White House calling for the Federal Reserve to cut rates with National Economic Council director Larry Kudlow making the media rounds saying low inflation justified an easing. President Donald Trump repeated the call saying “I personally think the Fed should drop rates,” and instead of “quantitative-tightening it should actually now be quantitative-easing.”
Lindsey M. Piegza, Stifel chief economist wrote that wage growth “remained solid at the end of the first quarter, but at a slightly slower clip than months prior. Again, such a realization underscores the Fed’s assumption that inflation remains near 2%, but the risk is to the downside and no rate adjustments are needed at this time.”
The week ahead has some key offerings with the March consumer and producer price indices due Wednesday and Thursday. But the minutes from the March Federal Open Market Committee meeting due Wednesday will be the highlight and parsed closely for the thinking behind the group’s dovish pivot.
The Treasury will auction $38 billion 3-year notes Tuesday, April 9, $24 billion reopened 10-years Wednesday, April 10 and $16 billion reopened 30-year bonds Thursday, April 11. There will be $42 billion 3- and $36 billion 6-month bills on sale Monday, April 8.
The nonfarm payrolls increased 196,000 (consensus: 170,000) in March following a revised 33,000 February gain (was 20,000), with January now 312,000 higher (was 311,000). The unemployment rate was steady at 3.8%.
Average hourly earnings were up 0.1% (consensus: 0.2%) from 0.4% previously, and the growth rate slowed to 3.20% year-over-year from 3.40% y/y. The workweek improved to 34.5 from 34.4.
Monday offers the February factory orders report (10 am ET).
The Treasury will auction $42 billion 3- and $36 billion 6-month bills (11:30 am).