Treasuries Climb Off Worst Levels But Still Close Firmly Negative

(RTTNews) - Treasuries saw considerable weakness during trading on Friday following the release of better than expected employment data.

After an early sell-off, bond prices regained some ground but remained firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.9 basis points to 2.267 percent.

The weakness among treasuries came after a closely watched Labor Department report showed employment in the U.S. jumped by much more than anticipated in the month of July.

The Labor Department said non-farm payroll employment surged up by 209,000 jobs in July after spiking by an upwardly revised 231,000 jobs in June.

Economists had expected employment to climb by 183,000 jobs compared to the addition of 222,000 jobs originally reported for the previous month.

With the stronger than expected job growth, the unemployment rate edged down to 4.3 percent in July from 4.4 percent in June. The modest decrease matched economist estimates.

The report also said average hourly employee earnings were up by 2.5 percent year-over-year in July, unchanged from the previous month.

The data generated optimism about the economic outlook while also raising concerns about the possibility of future interest rate hikes.

"Following the disappointing ISM surveys for July, released earlier this week, this employment report provides reassurance that the real economy remained solid at the start of the third quarter," said Michael Pearce, U.S. economist at Capital Economics.

He added, "If the labor market continues to tighten over the coming months, as the survey evidence suggests it will, the Fed will press ahead with rate hikes and balance sheet normalization later this year."

A separate report from the Commerce Department showed the trade deficit narrowed more than expected in June amid rising exports and falling imports.

The report said the trade deficit narrowed to $43.6 billion in June from $46.4 billion in May. Economists had expected the deficit to narrow to $45.0 billion.

Looking ahead, the economic calendar for next week is relatively quiet, although traders are likely to keep an eye on remarks by several Federal Reserve officials.

Reports on producer and consumer price inflation and labor productivity and costs may also attract some attention.

Bond trading could also be impacted by reaction to the results of the Treasury Department's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury is due to auction $24 billion worth of three-year notes next Tuesday, $23 billion worth of ten-year notes next Wednesday and $15 billion worth of thirty-year bonds next Thursday.