TREASURIES-Yields jump, curve flattens after strong jobs report
* Yields spike after jobs gains, wage increases
* Traders bring forward interest rate hike expectations
* Yield curve between 5-, 30-year bonds flattens
(Adds details on two-year and five-year yields, paragraphs 6,
7)
By Karen Brettell
NEW YORK, Feb 6 (Reuters) - U.S. Treasury yields jumped on
Friday, and the yield curve flattened after a report showed that
U.S. job growth rose solidly in January and wages rebounded
strongly, raising some bets that the Federal Reserve may act
sooner to raise interest rates.
Nonfarm payrolls increased by 257,000 last month, the U.S.
Labor Department said on Friday. Data for November and December
were revised to show 147,000 more jobs created than previously
reported.
Hourly wages increased 12 cents last month for a 2.2 percent
increase from a year earlier, the largest such gain since
August. They had fallen 5 cents in December.
"By any measure, this was an extremely good report," said
Tom Porcelli, chief U.S. economist at RBC Capital Markets in New (KOSDAQ: 160550.KQ - news)
York. "It adds some additional evidence for those folks
wondering what the fate of wages is going to be, that you
probably are looking at some modest wage pressures here."
Short- and intermediate-dated debt took the brunt of the
selling as some analysts and investors worried that current
yields failed to reflect the possibility that the Fed may raise
rates in the coming months if employment trends continue.
Two-year note yields increased to 0.648 percent
from 0.528 percent, their highest since Jan. 7. The
12-basis-point increase was the largest one-day move in nearly
five years.
Five-year note yields rose to 1.46 percent from
1.29 percent, the highest since Jan. 9.
"With this kind of a number, the Fed can go in the first
half of the year," said interest rate strategist Richard
Gilhooly of TD Securities in New York. "One more report like
this and the Fed will be going earlier."
Traders see a 62 percent chance that the first Fed rate hike
will come in September, based on CME FedWatch, which tracks such
expectations using its Fed funds futures contracts. They put a
47 percent probability on the chance of a July rate hike.
Before the report, traders were betting the Fed would wait
until October before raising rates. Short and intermediate-dated
notes are the most sensitive to interest rate increases.
The yield curve between five-year notes and 30-year bonds
was last 105 basis points from 112 basis points
before the report. It briefly flattened to 102 basis points.
Benchmark 10-year note yields jumped to 1.94
percent, their highest since Jan. 12, from 1.81 percent before
the report, and 30-year bond yields increased to
2.51 percent, their highest since Jan. 22, from 2.41 percent.
(Additional reporting by Ann Saphir and Michael Connor; Editing
by Bernadette Baum, Meredith Mazzilli and Lisa Von Ahn)