Surprisingly weak April jobs report pushes yields lower

CHICAGO: US Treasury yields backed off from two-month lows reached on Friday after the April employment report showed a much smaller-than-expected jobs gain even as the economy rebounds from the coronavirus pandemic.

The benchmark 10-year yield, which dropped to 1.469%, the lowest since March 4, was last down 1.6 basis points at 1.5452%, holding below a 14-month high of 1.776% reached on March 30.

The 30-year yield tumbled to its lowest level since March 1 at 2.158%. It was last up less than a basis point at 2.2449%.

Nonfarm payrolls increased by only 266,000 jobs last month after rising by 770,000 in March, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls advancing by 978,000 jobs.

Guy LeBas, chief fixed income strategist at Janney Capital Management in Philadelphia, said the report triggered a "knee-jerk reaction" in Treasuries, which then began to fade.

"I suspect we have probably a little bit more left in the downdraft in yields from their recent peak back in March," he said. "But the intermediate to longer-term trajectory is higher."

Inflation expectations temporarily eased in the wake of the jobs data with the breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) falling as low as 2.586% from 2.661% at the previous close. It was last at 2.66%.

The 10-year TIPS breakeven rate also rebounded after falling. It was last at 2.474%, the highest since April 2013.

The two-year Treasury yield, which typically moves in step with interest rate expectations, was last 2.2 basis points lower at 0.1349%.

A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was little changed at 141.33 basis points.