Bond Report: 30-year Treasury yield pares weeklong decline after jobs report

Treasury yields rose Friday, taking back a chunk of their weeklong decline, after the all-important nonfarm payrolls report suggested an economy that was still growing at a moderate clip.

The 10-year Treasury note yield TMUBMUSD10Y, +0.18% rose 2.5 basis points to 2.901%, bouncing off a more than three-month low. The 2-year note yield TMUBMUSD02Y, -0.89% was mostly unchanged at 2.760%, while the 30-year bond rate TMUBMUSD30Y, +0.49% climbed 4.1 basis points to 3.177%. 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 14 basis points, or 0.14 percentage point. When the short-dated maturity pushes above its long-term peer, this rare bond market phenomenon is typically 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.

The jobs report showed the U.S. economy had added 155,00 jobs in November, well below the reading of 190,000 from economists polled by MarketWatch. The unemployment rate remained steady at 3.7%, while average hourly gains rose 0.2%.

See: U.S. gains 155,000 jobs in November and unemployment rate stays at 3.7%

Stuart Hoffman, senior economic adviser at PNC Financial, said in a tweet this was a “Goldilocks report.” Job gains remain solid enough to keep a Federal Reserve interest-rate hike in December on the table, but poor enough, perhaps, to back a pause in rate hikes in 2019, analysts have said. That could spur long-term growth expectations and dampen demand for long-dated Treasurys, sending their yields higher.

Read: Softer-than-expected jobs report called uninspiring by economists

The report could also help defuse concerns that the economy will slow down significantly next year, amid an inverted yield curve at the short-end along with fears about tariffs. This comes amid speculation the Federal Reserve will pause its hiking cycle next year, helping to spur a bond market rally 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.

Perhaps aiding the selloff of long-dated Treasurys on Friday, reports said the Organization of the Petroleum Exporting Countries had agreed to cut production, sending oil prices higher. Diminished supply could help arrest the slump in crude prices CLF9, +4.37%   that has undermined inflation expectations, making investors more amenable to holding long-dated government paper than before.

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

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