Treasuries outlook: yields rise on strong US nonfarm payrolls report

US Treasury yields advanced on Friday after data showed the world's largest economy created far more jobs than expected in February, reinforcing expectations the Federal Reserve would raise interest rates at least three times this year. Investors largely shrugged off a slowdown in average hourly earnings growth, a closely watched inflation metric, pushing yields to session highs following the data.
US nonfarm payrolls expanded by 313,000 jobs last month, boosted by the largest gain in construction jobs since 2007. The increase in payrolls last month was the biggest since July 2016. The average hourly earnings, however, edged up four cents, or just 0.1 percent, to $26.75 in February, a slowdown from the 0.3 percent rise in January. That lowered the year-on-year increase in average hourly earnings to 2.6 percent from 2.8 percent in January.
"We don't think it changes their short-term trajectory for rate hikes," said Marvin Loh, senior global market strategist, at BNY Mellon in Boston. "While the aspect of non-accelerating wages will likely cause concern for the doves, the strong gains in the overall job creation still creates risk of an economy overheating and supports Fed vigilance," he added.
Traders of US short-term interest-rate futures on Friday kept bets that the Fed will stick to three rate hikes this year. They also continued to price in just a one-in-four chance of a fourth rate hike this year, based on a Reuters analysis of fed funds futures contracts traded at CME Group Inc. Fed officials who spoke or made comments on Twitter on Friday - Boston Fed President Eric Rosengren, Chicago Fed President Charles Evans, and Minneapolis Fed President Neel Kashkari - were divided on the implications of the February US non-farm payrolls report. Their mixed views underscored the uncertainty surrounding the Fed's next meeting later this month. .
In late trading, US benchmark 10-year yields were up at 2.897 percent after earlier hitting session highs, from Thursday's 2.866 percent. US 30-year yields also touched the day's peak and last traded at 3.164 percent, compared with 3.132 percent late on Thursday. US two-year yields matched a nine-year peak of 2.286 percent hit Feb. 28 and were last at 2.702 percent, from Thursday's 2.254 percent.