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Markets

Yields touch records at both ends of the curve in volatile session

  • The benchmark 10-year yield was last up 1.6 basis points at 1.1549pc having risen to 1.188pc, its highest since March 20, 2020.
Published February 6, 2021

Traders drove U.S. Treasury yields to record levels at both ends of the yield curve on Friday in a choppy session after a report showed employment growth rebounded less than forecast in January, strengthening expectations of more stimulus spending in Washington.

The benchmark 10-year yield was last up 1.6 basis points at 1.1549pc having risen to 1.188pc, its highest since March 20, 2020.

At the other end of the curve the yield on the 2-year note, seen as an indicator of inflation expectations, was down almost a basis point at 0.1072pc after matching its all-time low of 0.105pc last reached May 8, 2020.

The movement left the closely watched part of the U.S. Treasury yield curve measuring the gap between yields on the two notes, seen as an indicator of economic expectations, at 105 basis points, about 3 basis points higher than Thursday's close and its highest since May 2017.

Priya Misra, TD Securities head of global rates strategy, said the volatile trading showed investors focused on incremental news about spending talks in Washington after the morning's jobs report did not offer a clear case for either political parties' priorities.

Expectations "are all over the place," she said.

U.S. employment growth rebounded less than expected in January and job losses the prior month were deeper than initially thought, strengthening the argument for additional relief money from the government to aid the recovery from the COVID-19 pandemic.

Analysts described the results as having mixed implications for government bond markets and giving traders a chance to take profits after yields on longer-term U.S. notes rose in recent days.

"The jobs report isn't bad. You should expect a lot of volatility at a time like this," said Subadra Rajappa, head of U.S. Rates Strategy for Societe Generale in New York.

The unemployment rate was at 6.3pc in January, which Rajappa said put it close to achieving the 5pc targeted by the U.S. Federal Reserve.

U.S. stocks rose on Friday with the S&P 500 and the Nasdaq hitting record highs as stimulus talks, upbeat earnings and progress in vaccine rollouts bolstered bets of a speedy economic recovery.

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