Treasuries Move Sharply Lower Following Upbeat Jobs Data

(RTTNews) - After ending the previous session firmly positive, treasuries showed a substantial move back to the downside during trading on Friday.

Bond prices moved sharply lower in early trading and remained firmly negative throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged 16.4 basis points to 2.840 percent.

The sell-off by treasuries came following the release of the Labor Department's closely watched monthly jobs report.

The report showed employment in the U.S. jumped by much more than expected in the month of July, leading to concerns about the outlook for interest rates.

The report showed non-farm payroll employment spiked by 528,000 jobs in July after surging by an upwardly revised 398,000 jobs in June.

Economists had expected employment to climb by about 250,000 jobs compared to the addition of 372,000 jobs originally reported for the previous month.

With the stronger than expected job growth, the unemployment rate unexpectedly edged down to 3.5 percent July from 3.6 percent in June. The unemployment rate was expected to remain unchanged.

While the data paints a positive picture of the labor market, the report may also give the Federal Reserve confidence they can continue aggressively raising interest rates without causing a recession.

"The unexpected acceleration in non-farm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressure, make a mockery of claims that the economy is on the brink of recession," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "This raises the odds of another 75bp rate hike in September, although the outcome depends more on the evolution of the next couple of CPI reports."

Next week's trading is likely to be driven by reaction to the latest readings on U.S. inflation, which could further impact the outlook for interest rates.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.