Yields lowest since May on subdued wage inflation

NEW YORK: US 10-year Treasury yields fell to their lowest levels in five weeks and the Treasury yield curve flattened to its tightest levels since 2007 after jobs data for June showed that wage pressures were below economists' expectations.

Average hourly earnings rose 5 cents, or 0.2 percent, in June after increasing 0.3 percent in May. Economists had expected an 0.3 percent increase. Nonfarm payrolls increased by 213,000 jobs in the month.

The moderate wage growth should allay fears of a strong buildup in inflation pressures. The US Federal Reserve's preferred inflation measure hit the central bank's 2 percent target in May for the first time in six years.

"Average hourly earnings are, I think, the number that most Treasury traders are laser-focused in these employment reports, that I think is why you got a little bit of an initial rally," said Thomas Simons, a money market economist at Jefferies in New York.

The rise in the unemployment rate also "without going into the details doesn't look great, but when you get down to it, it's pretty good news overall," Simons said.

Benchmark 10-year note yields fell to 2.816 percent, the lowest since May 30 and down from 2.832 percent before the data was released.

The yield curve between 2-year and 10-year notes flattened to 27 basis points, the tightest spread since 2007.

The yield curve has flattened as investors expect the Fed to continue raising interest rates even as long-term inflation looks likely to be subdued.

Minutes from the Fed's June meeting released on Thursday gave the impression of a central bank impressed by the US economy's strength and confident in its plans to continue raising rates, but also concerned with what could push the economy off its upward course.

US central bankers discussed whether recession lurked around the corner and expressed concerns global trade tensions could hit an economy that by most measures looked strong.

Bonds had muted reaction after the United States and China slapped tit-for-tat duties on $34 billion worth of the other's imports, with Beijing accusing Washington of triggering the "largest-scale trade war" as the world's two biggest economies sharply escalated their conflict.