Treasuries See Further Downside Following Mixed Employment Data

My FX Forum

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Treasuries moved lower following the release of the monthly jobs report on Friday, extending the notable downward move seen over the two previous sessions.

Bond prices climbed off their worst levels going into the close but remained firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.8 basis points to 3.225 percent.

With the increase on the day, the ten-year yield closed higher for the third consecutive session, reaching its highest closing level in well over seven years.

The continued weakness among treasuries came as traders reacted to the mixed monthly employment data by the Labor Department.

While the Labor Department report showed weaker than expected job growth in September, the jump in employment in August was upwardly revised and the unemployment rate fell to its lowest level since 1969.

The Labor Department said non-farm payroll employment climbed by 134,000 jobs in September, while economists had expected an increase of about 185,000 jobs.

However, the report also showed a significant upward revision to the pace of job growth in August, with employment spiking by 270,000 jobs compared to the originally reported jump of 201,000 jobs.

The Labor Department also said the unemployment rate fell to 3.7 percent in September from 3.9 percent in August. The unemployment rate had been expected to edge down to 3.8 percent.

With the bigger than expected decrease, the unemployment rate fell to its lowest level since hitting 3.5 percent in December of 1969.

Average hourly employee earnings rose by $0.08 or 0.3 percent to $27.24 in September, reflecting a year-over-year increase of 2.8 percent.

"Overall, a strong report that will keep the Fed firmly on track to continue raising rates once a quarter, with the next hike likely to come in December," said Michael Pearce, Senior U.S. Economist at Capital Economics.

A separate report from the Commerce Department showed the U.S. trade deficit widened in August, reflecting an increase in imports and a decrease in exports.

The Commerce Department said the trade deficit widened to $53.2 billion in August from a revised $50.0 billion in July. Economists had expected the trade deficit to widen to $53.5 billion.

Pearce said the data suggests "net trade is on track to be a substantial drag on GDP growth in the third quarter, which we expect will come in at 3.0% annualized."

The economic calendar for next week starts off relatively quiet due to the Columbus Day holiday, although reports on producer and consumer prices are likely to attract attention along with remarks by several Federal Reserve officials.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury plans to sell $36 billion worth of three-year notes and $23 billion worth of ten-year notes next Wednesday and $15 billion worth of thirty-year bonds next Thursday.