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Bond Report: Treasury yields rise, with 2s10s spread inverting again

Treasury yields rose Friday as data showed the U.S. created a robust 431,000 jobs in March, while wages surged and labor markets powered ahead.

The rise in yields was strongest in the 2-year rate, which traded above the 10-year yield for the second time this week and inverted their spread by as much as 2.6 basis points.

What are yields doing?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 2.446% rose to 2.421%, up from 2.324% at 3 p.m. Eastern on Thursday.
  • The 2-year Treasury yield TMUBMUSD02Y, 2.444% stood at 2.436%, up from 2.284% Thursday afternoon. The 2-year yield jumped 155.4 basis points in the first quarter that ended on Thursday, the biggest quarterly gain since June 1984, based on 3 p.m. levels, according to Dow Jones Market Data.
  • The 30-year Treasury bond yield TMUBMUSD30Y, 2.538% rose to 2.509% from 2.444% late Thursday.
What’s driving the market?

Data released Friday showed that the U.S. economy added 431,000 jobs in March, still a healthy level but less than the 490,000 new jobs that had been forecasted for last month, according to a poll of economists by The Wall Street Journal. The unemployment rate fell to 3.6% in March from 3.8%.

It’s been an eventful week for the Treasury market, with the yield on the 2-year note trading above the 10-year yield again as of Friday morning, following a similar dynamic on Tuesday — marking another inversion of that measure of the yield curve. Persistent inversions of the 2-year/10-year part of the curve are seen as a recession indicator, albeit with a lag of a year or more.

See: What stock-market investors need to know about the bond market’s recession signal

Investors will also parse a U.S. final March purchasing managers index reading at 9:45 a.m. ET and the Institute for Supply Management’s March manufacturing index at 10 a.m. Chicago Fed President Charles Evans is due to speak Friday morning.

What are analysts saying?

The second quarter “has come in like a bear with 10-year yields backing up to 2.437% during the overnight session as the long bond breached 2.50%,” wrote Ian Lyngen and Ben Jeffery, rates strategists at BMO Capital Markets, in a note. “Even the front-end of the market was weaker with 2s drifting back to 2.412% and leaving the flat-to-inverted 2s/10s curve in place.”

“As the realized rate hikes mount, there is a stronger case for a deeper inversion, but for now we expect the frequency of parallel shifts in the curve to increase; comparable to the overnight price action.”

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