Yields surge as jobs report seen spurring stimulus talks

CHICAGO: U.S. Treasury yields shot higher and the yield curve steepened on Friday after a disappointing November employment report was expected to increase pressure on Washington to pass a new round of stimulus to help the coronavirus-battered economy.

The benchmark 10-year yield, which hit its highest level since March at 0.981pc, was last up 5.2 basis points at 0.9725pc.

The closely watched spread between two- and 10-year notes hit 82.26 basis points, the widest since February 2018. It was last up about 5 basis points at 81.09 basis points.

Nonfarm payrolls increased by 245,000 jobs last month, the fewest in six months, after rising by 610,000 in October, the U.S. Labor Department reported.

Economists polled by Reuters had forecast payrolls increasing by 469,000 jobs in November.

The unemployment rate fell to 6.7pc from 6.9pc in October.

"We're back in the bad-news-is-good-news camp," said Collin Martin, fixed income strategist at the Schwab Center for Financial Research in New York.

"If this report can nudge Congress to pass some aid, that should be good for the overall economy, which should lead to slightly higher yields."

A bipartisan, $908 billion coronavirus aid plan gained momentum in the U.S. Congress on Thursday, but it was unclear if Republican Senate Majority Leader Mitch McConnell would support that level of spending.

Guy LeBas, chief fixed income strategist at Janney Capital Management in Philadelphia, said more stimulus would mean more supply in the Treasury market.

"I expect this curve steepening we're seeing will continue into the auctions this month, if not longer," he said.

The U.S. Treasury will offer $56 billion of three-year notes, $38 billion of 10-year notes and $24 billion of 30-year bonds in auctions next week.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last up less than a basis point at 0.1566pc.