TREASURIES-Yields jump after strong ISM, jobs data suggest economy growing

BY Reuters | TREASURY | 02/03/23 10:59 AM EST
    (Replaces 'prices' with 'yields in the third paragraph.)
    By David Randall
       NEW YORK, Feb 3 (Reuters) - U.S. Treasury yields jumped
higher on Friday after data that showed job growth surged and
services activity rebounded in January, further complicating the
Federal Reserve's attempts to slow the economy to bring
inflation down.
    The yield on 10-year Treasury notes was up 13
basis points to 3.528%, erasing price gains for the week. The
yield on the 30-year Treasury bond was up 8.5 basis
points to 3.640%.
    Bond prices move in the opposite direction of yields.
    "We've been saying for a little while that maybe yields have
come in too far too soon and that a selloff in rates would make
a lot of sense," said Lawrence Gillum, fixed income strategist
for LPL Financial. "In the near term it's hard to see that a
recession will be imminent, but it increases the risk of a
policy error if the Fed does have to go higher for longer."
    Job growth and wages are the chief concerns for the Fed in
its attempt to lower inflation down to its 2% target rate after
inflation surged to 40-year highs last year. Average hourly
earnings rose 0.3% after gaining 0.4% in December, bringing the
year-on-year increase in wages to 4.4% from 4.8% the month
    "Even with stronger-than-expected headline numbers, we saw
wage growth come down," said Sam Millette, fixed income
strategist for Commonwealth Financial Network.
    "There are some signs of a sort of Goldilocks scenario for
the Fed here where they aren't seeing the large increase in
unemployment that's associated with tighter monetary policy, but
they are seeing wage growth starting to slow."
    Non-farm payrolls surged by 517,000 jobs last month, the
Labor Department said. Economists polled by Reuters had forecast
payrolls increasing 185,000 and wages advancing 4.3%
    The unemployment rate fell to 3.4% from December's 3.5%.
    The Institute for Supply Management (ISM) said on Friday its
non-manufacturing PMI increased to 55.2 last month, above the
50.4 reading expected by economists polled by Reuters. The index
dropped to 49.2 in December, falling below the 50 level, which
signals contraction, for the first time since May 2020.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at -75 basis points.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 15.9 basis
points at 4.249%.
      February 3 Friday 10:26AM New York / 1526 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             4.545        4.6593    0.019
 Six-month bills               4.66         4.8362    0.051
 Two-year note                 99-187/256   4.2678    0.178
 Three-year note               99-214/256   3.9339    0.170
 Five-year note                99-80/256    3.652     0.169
 Seven-year note               99-96/256    3.6019    0.162
 10-year note                  104-216/256  3.5339    0.136
 20-year bond                  103-8/256    3.7806    0.112
 30-year bond                  106-104/256  3.6453    0.090

                               Last (bps)   Net
 U.S. 2-year dollar swap        26.00        -1.75
 U.S. 3-year dollar swap        14.50        -0.75
 U.S. 5-year dollar swap         6.25        -1.00
 U.S. 10-year dollar swap       -2.25        -1.50
 U.S. 30-year dollar swap      -37.25        -2.25

 (Reporting by David Randall; Editing by Arun Koyyur and Andrea

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