Treasury yields trended lower on Friday as investors digested economic data and assessed its impact on the Federal Reserve’s rate-hiking cycle.
The benchmark 10-year Treasury yield fell about 16 basis points to 3.567%. The 2-year Treasury yield fell around 19 basis points to 4.264%. The 30-year Treasury yield fell nearly 11 basis points to 3.689%.
Yields and prices move in opposite directions. One basis point equals 0.01%.
Nonfarm payrolls rose by 223,000 in December, beating the Dow Jones estimate of 200,000, while the unemployment rate fell to 3.5%, 0.2 percentage point below expectation.
Wage growth was weaker than expected, suggesting that inflationary pressures may be easing. Average hourly earnings rose 0.3% this month and 4.6% year-on-year. The respective estimates assumed growth of 0.4% and 5%.
“Nothing in the release would suggest this is anything other than a strong jobs report with moderate wage pressures,” Ian Lyngen, BMO’s head of US rates, said in a note. “As a result, we will argue that the 25bp vs. 50bp rate hike debate now boils down to next week’s CPI print.”
Tight labor markets are often closely linked to high inflation, which the Fed has been trying to cool. Many look to Fed spokesman comments and new economic data for signals that the Fed may slow or pause rate hikes in 2023.
Bond yields fell further as the ISM non-manufacturing PMI showed on Friday that manufacturing numbers fell, a sign that the Fed’s rate hikes may be helping slow the economy.