#Bond Report: Treasury yields turn mixed as U.S. adds disappointing 210,000 jobs in November

What are yields going?

• The 10-year Treasury note
  TMUBMUSD10Y,
  1.433%
  yields 1.441%, down slightly from 1.447% at 3 p.m. Eastern Time on Thursday. Yields fall as prices for Treasurys rise.

• The 2-year Treasury note
  TMUBMUSD02Y,
  0.642%
  yields 0.635%, compared with 0.617% a day ago.

• The 30-year Treasury
  TMUBMUSD30Y,
  1.761%,
  aka the long bond, was yielding 1.761%, down slightly from 1.768% on Thursday.

What’s driving the market?

The gain of 210,000 new jobs last month fell way below Wall Street expectations, and showed the worst labor shortage in decades is still a drag on the recovery. Economists polled by The Wall Street Journal had forecast 573,000 new jobs. The jobless rate fell to 4.2% from 4.6%, as businesses took more aggressive steps to hire people, while average hourly earnings climbed 4.8% in the 12 months that ended in November.

Analysts say the disappointing jobs gain isn’t likely to alter the Federal Reserve’s plan to accelerate the scaling back of its monthly bond purchases at policy makers’ next meeting in less than two weeks. Fed Chairman Jerome Powell and other members of the central bank’s rate-setting committee have suggested that a faster tapering of asset purchases could be warranted to combat rising inflation pressures.

Earlier this week, Powell surprised market participants by opening the door to speeding the tapering process when policy makers meet later this month. He also said he wanted to retire the word “transitory” when referring to inflation.

Next week, the Fed enters a media blackout period ahead of its Dec. 14-15 policy gathering, its last one of 2021.

On Thursday, the widely followed spread between 2- and 10-year rates shrank below 83 basis points, marking the narrowest since Jan. 4, according to Tradeweb data. Meanwhile, the gap between 5- and 30-year yields narrowed to a level not seen since March 9, 2020. Such movements usually imply that investors hold a downbeat longer-term outlook for the economy.

Also on Thursday, tests showed five more people recently infected with COVID-19 had the omicron variant, in addition to the man who attended an anime convention in Manhattan. New York Gov. Kathy Hochul said there is “no cause for alarm.”

Beyond Friday’s jobs report, the final November reading of IHS Markit’s purchasing managers index geared to the service sector was 58 versus an initial reading of 57. The more closely watched services reading from the Institute for Supply Mangement rose to 69.1 in November from 66.7, above forecasts. A reading of 50 or better indicates improving conditions. U.S. factory orders were up by 1% in October.

What strategists are saying

• “The disappointing 210,000 gain in non-farm payrolls in November suggests the labor market recovery was faltering even before the potential impact of the new omicron variant, possibly as a result of the rising infection rates in the Northeast and Midwest,” wrote Andrew Hunter, senior U.S. economist for Capital Economics, in a note. “Nevertheless, the Fed will still push ahead with its plans to accelerate the pace of its QE taper at this month’s FOMC meeting.”