NEW YORK: US Treasury debt prices rose on Friday after the government reported healthy gains last month in the U.S. labor market, although average hourly wages declined, suggesting a lengthening of the time before the Federal Reserve raises interest rates.
Price gains were strongest in two-and five-year maturities, which had lagged in an eight-session rally that ended this week. Long-maturity issues, after earlier selling, also rebounded.
The five-cent drop in average hourly wages in December's employment data, which included a bigger-than-forecast increase in nonfarm payrolls and a decline in the U.S. unemployment rate to 5.6 percent, may delay a Fed rate hike.
"We are once again looking at a situation where people are getting hired but we are not seeing the wage increases the Fed would like to see. That keeps the Fed on hold; inflation is low, oil prices are low, the job market is improving but not in all the ways the Fed is looking for," said Kate Warne, investment strategist at Edward Jones in St. Louis.
Perceived odds on the Fed raising rates by September fell to 52 percent, according to CME Fedwatch, which tracks futures contracts. That was down from 60 percent before the jobs data.
Earlier this week, in a rally fueled by falling oil prices and expectations European policymakers will soon launch a bond-buying program, the Treasuries spread narrowed to its tightest since December 2007.
The biggest price gains were in five-year notes, which were last up 8/32 and yielding 1.445 percent, down from a session high of 1.507 percent.
Two-year notes were ahead 2/32 and yielding 0.577 percent, as the benchmark 10-year note traded up 13/32 to yield 1.97 percent, according to Reuters data.
"Two percent on the 10-year yield has discounted a lot of the news on low wage inflation. My guess is that at the end of the month, we are going to see rates go a bit lower," said Kathy Jones, fixed income strategist at Charles Schwab in New York.
"There are still a lot of powerful disinflationary forces globally with the parts of Europe in deflation and the drop in oil prices, and they hold down yields."
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