Yields dip after wage inflation disappoints

NEW YORK: US Treasury yields fell from 1-1/2-week highs on Friday as government data showed strong jobs growth in April matched what many traders had expected, while wage gains were muted.

Nonfarm payrolls increased by 263,000 jobs last month, amid gains in hiring nearly across all sectors, the US Labor Department reported. Economists polled by Reuters had forecast nonfarm payrolls rising by 185,000 jobs last month.

Still, yields fell after the jobs release since many traders had priced in more bullish job gains than economists, helping bond yields rise over the past three days.

"There's been some liquidations going on for the last couple of days based on the perception that this number's going to be a strong data set for the most part," said Tom di Galoma, a managing director at Seaport Global Holdings in New York.

"My sense is that buyers are going to be around just because the data wasn't so out of whack and we've gotten back to levels where accounts want to buy the market," he said.

Wage inflation was also muted with average hourly earnings rising six cents, or 0.2% in April after rising by the same margin in March. That kept the annual increase in wages at 3.2%.

Average hourly earnings "were disappointing," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York. "In light of the Fed's emphasis on inflation at this point in the cycle, we're not surprised to see the Treasury market is slightly higher following the data release."

Benchmark 10-year notes  were last up 3/32 in price on the day to yield 2.543 percent, down from 2.552 percent on Thursday.

Yields have risen since Federal Reserve Chairman Jerome Powell on Wednesday gave a more bullish take on inflation and the economy than expected.

Powell said the drop in inflation this year may be due to transitory factors and that economic and job growth has been stronger than the committee expected.

Interest rate futures traders see a reduced chance of a rate cut this year after Powell's comments. They are now pricing in a 50 percent chance of a rate cut by December, down from 64 percent before the Fed meeting statement, according to the CME Group's FedWatch Tool.

Given the focus on inflation, the next major catalyst that will give clues on Fed policy will be consumer price inflation data due next Friday.