Treasuries Pull Back Sharply After Seeing Early Strength

(RTTNews) - Treasuries showed a strong move to the upside in early trading on Friday but saw a substantial downturn over the course of the session.

Bonds pulled back well off their highs of the session and firmly into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.7 basis points to 4.361 percent after hitting a low of 4.223 percent.

The ten-year yield added to the modest gain seen in the previous session, ending the day at its highest closing level in almost four months.

The early strength among treasuries came following the release of a closely watched Labor Department report showing much weaker than expected job growth in the month of October.

The Labor Department said non-farm payroll employment crept up by 12,000 jobs in October after jumping by a downwardly revised 223,000 jobs in September.

Economists had expected employment to climb by 113,000 jobs compared to the surge of 254,000 jobs originally reported for the previous month.

Meanwhile, the report said the unemployment rate came in at 4.1 percent in October, unchanged from September and in line with economist estimates.

While the data initially generated concerns about the economy, increasing the appeal of bonds, traders seemed to feel the impact of Hurricanes Helene and Milton and the Boeing (BA) strike will not lead the report to affect the Federal Reserve's plan to gradually lower interest rates.

"At a critical moment, unfortunately the signal from the October employment report is not a clear one for the Fed or markets given the distortions from Hurricanes Helene and Milton and the Boeing labor strike, which we estimate lowered the payroll count by 100,000," said Nationwide Chief Economist Kathy Bostjancic.

She added, "These readings along with the decline in job openings suggests a labor market that continues to cool and supports our call that the Fed cuts the funds rate by 25bps next week."

Traders also shrugged off a separate report released by the Institute for Supply Management showing U.S. manufacturing activity unexpectedly contracted at a modestly faster rate in the month of October.

The ISM said its manufacturing PMI fell to 46.5 in October from 47.2 in September, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 47.6.

With the unexpected decrease, the manufacturing PMI dropped to its lowest level since hitting a matching figure in July 2023.

The outcome of the U.S. presidential election is likely to be in focus next week, while reports on factory orders, service sector activity and consumer sentiment may also attract attention.