US yield curve steepens on hopes for rate-hike pause

NEW YORK: The margin between short- and long-end US Treasury yields grew on Friday as weaker-than-expected data on domestic jobs growth in November bolstered the view the Federal Reserve may tap the brakes on raising interest rates sooner than previously thought.

Bets that the end of the US central bank's rate-hike campaign is on the horizon and a rally in oil prices after an OPEC deal to reduce output briefly kindled appetite for stocks and other risky assets, reducing demand for safe-haven US government debt, analysts said.

Bond yields have fallen over the past month on worries about slowing global growth and declining oil prices. Fears about the Brexit negotiation and trade tension between China and the United States had stoked safety bids for Treasuries.

"It builds the case for a deceleration for hiking next year," Ed Al-Hussainy, global rates and currency strategist at Columbia Threadneedle Investments in Minneapolis, said of the latest payrolls report.

Earlier Friday, the US Labor Department said public and private employers hired 155,000 workers in November, fewer than the 200,000 forecast by economists polled by Reuters, while the jobless rate held at a 49-year low of 3.7 percent.

Wage growth remained modest, raising 0.2 percent last month.

At 10:32 a.m. (1532 GMT), the benchmark 10-year Treasury yield was up 2 basis points at 2.895 percent. On Thursday, it touched 2.866 percent, a three-month low.

The 10-year yield was on track to fall for a fifth straight week, which would be the longest such stretch since seven weeks of decline between May and July 2016, Refinitiv data showed.

The two-year yield was down marginally at 2.754 percent, leaving its weekly fall at 5 basis points.

The entire yield curve steepened, with the spread between two-year and 10-year yields widening 2 basis points to 14 basis points.

The front half of the yield curve remained inverted after two-year and three-year yields rose above five-year yields for the first time in over a decade earlier this week.

This market phenomenon has stoked speculation as to whether a US recession is looming.

Interest rates futures suggested traders saw a 78 percent chance the Fed would raise rates by a quarter point to 2.25-2.50 percent at its Dec. 18-19 meeting, up from 71 percent on Thursday, CME Group's FedWatch showed.

Futures prices implied traders expected little chance of more than one rate hike in 2019.

Back in September, Fed policymakers on average had projected three rate increases for next year.