Treasury prices were little changed after the Labor Department said job growth increased and the unemployment rate fell in April.
The yield on the two-year Treasury note, which tends to be sensitive to expectations for Federal Reserve policy, rose Friday to 2.498% from 2.482% on Thursday. Yields rise as bond prices fall. The yield on the 10-year Treasury note was unchanged from Thursday at 2.946% and finished the week lower, snapping a streak of four consecutive weekly gains.
Yields declined after the Labor Department said that employers added 164,000 jobs in April, a pickup from March though less than the 195,000 forecast by economists surveyed by The Wall Street Journal. The jobless rate, calculated from a separate survey of households, fell to 3.9% from 4.1% a month earlier, hitting the lowest rate since December 2000, toward the end of the tech boom. Wages continued to grow sluggishly despite low unemployment, rising 4 cents over the month and 2.6% over the past year.
Continued job growth and a decline in the unemployment rate to below 4%, combined with minimal wage pressure, helped fuel gains in stocks, leading bond yields to follow stocks higher, said James Caron, a bond manager at Morgan Stanley Investment Management.
While many investors and economists have speculated that the tightening labor market would be an important factor in encouraging Fed officials to speed up their pace of interest-rate increases, the inability of steady job growth to translate into wage inflation has led some investors to scale back those expectations.
Inflation poses a threat to the value of bonds because it erodes the purchasing power of their fixed payments and can spur the Fed to raise interest rates. Fed-funds futures late Friday showed the market sees a 42% likelihood for four rate increases in 2018, down from 47% a week ago, according to CME Group data.
“The labor market is on solid footing, however we’ve had a couple of slow months,” said
Thomas di Galoma,
managing director and head of Treasury trading at Seaport Global Holdings.
The 10-year yield reversed its early decline later in the session. Gains in bond prices may be capped by the rising supply of U.S. government debt. The Treasury is scheduled to sell $73 billion of notes and bonds next week. The same series of sales raised $62 billion before the government began raising auction sizes following the passage of the $1.5 trillion tax cut in December.
Bonds gained earlier in the session on signs that the expansion in Europe is running out of steam, with disappointing data on retail sales Friday following a report Thursday from Eurostat, the European Union’s statistics office, showing a slowdown in the pace of inflation. Consumer prices rose 1.2% in April from the year before, down from a 1.3% increase in March. The European Central Bank target for inflation is 2%.
Corrections & Amplifications
Yields declined after the Labor Department said that employers added 164,000 jobs in April, a pickup from March though less than the 195,000 forecast by economists surveyed by The Wall Street Journal. An earlier version of the story misstated the number of jobs forecast in the Wall Street Journal economist survey. (May 4, 2018)
Write to Daniel Kruger at Daniel.Kruger@wsj.com