Bond Report: 10-year Treasury yield hovers above 3-month low ahead of jobs report

Treasury yields struggled for direction on Friday, capping a turbulent week of trading, ahead of the all-important nonfarm payrolls report that could give fresh clues to the economy’s health.

The 10-year Treasury note yield TMUBMUSD10Y, +0.46% rose 1.2 basis points to 2.888%, bouncing off a more than three-month low. The 2-year note yield TMUBMUSD02Y, +0.00% was mostly unchanged at 2.766%, while the 30-year bond rate TMUBMUSD30Y, +0.01% was up by 1.1 basis points to 3.147%. Bond prices move in the opposite direction of yields.

The gap between the 2-year note yield and the 10-year note yield, a common gauge of the yield curve’s slope, narrowed to 12 basis points, or 0.12 percentage point. When the short-dated maturity pushes above its long-term peer, this rare bond market phenomenon is seen as a recession indicator.

The gap between the 3-year note and the 5-year note yield turned negative earlier this week, though the inversion of this pairing has a spotty record of predicting an economic downturn.

See: How a yield-curve inversion can turn into a ‘self-fulfilling’ recession prophecy

Investors will closely pore over the details of the November jobs report at 8:30 a.m. Eastern amid growing doubts over the economy’s ability to maintain its second longest expansion since World War II. Economists polled by MarketWatch expect a reading of a 190,000. The nonfarm payrolls numbers will arrive after Automatic Data Processing Inc. had reported the U.S. economy had picked up 179,000 jobs in November.

Read: U.S. adds 179,000 private-sector jobs in November: ADP

Check out: Job creation was supposed to slow, but a funny thing happened: Hiring has sped up

An inverted yield curve at the short-end along with fears about tariffs have sparked concerns the economy could slow down next year significantly. That, in turn, has stoked speculation the Federal Reserve will pause its hiking cycle next year, helping to spur a rally in long-dated Treasurys this week.

“The collective judgment of financial market participants appears to be that the economy is falling apart and that the Fed is nearly done with rate hikes for the cycle,” wrote Stephen Stanley, chief economist for Amherst Pierpont Securities.

A report from The Wall Street Journal said the central bank was considering a more patient approach to further rate hikes after the December meeting, echoing remarks made on Thursday by Dallas Fed President Robert Kaplan. Fed governor Lael Brainard will speak about financial stability later Friday at 12:15 p.m. Eastern.

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