Treasuries climbed sharply in early trading on Friday but experienced a notable decline as the session progressed. Bonds retreated significantly from their peak, settling decisively in negative territory. Consequently, the yield on the benchmark ten-year note, which inversely correlates to bond prices, rose by 7.7 basis points to 4.361 percent, after dipping as low as 4.223 percent earlier in the session.
This increase added to the modest gains of the previous session, pushing the ten-year yield to its highest closing level in nearly four months.
The initial strength in treasuries was prompted by a closely monitored report from the Labor Department that revealed much weaker-than-expected job growth for October. According to the report, non-farm payroll employment edged up by just 12,000 jobs in October, following a downward revision to 223,000 jobs added in September. Economists had projected an increase of 113,000 jobs, compared to the originally reported 254,000 jobs for the prior month.
Additionally, the report noted that the unemployment rate stood at 4.1 percent in October, unchanged from September and aligning with economists' expectations.
Although the data initially sparked economic concerns, thus enhancing the attractiveness of bonds, traders seemed unconvinced that the effects of Hurricanes Helene and Milton and the Boeing (BA) strike would influence the Federal Reserve’s plan to steadily reduce interest rates.
Nationwide's Chief Economist, Kathy Bostjancic, commented, "At a crucial juncture, the October employment report does not provide a clear directive for the Fed or markets due to distortions from Hurricanes Helene and Milton and the Boeing labor strike, which we estimate reduced the payroll count by 100,000."
She further stated, "These figures, along with the decline in job openings, suggest a continuously cooling labor market, supporting our forecast for the Fed to cut the funds rate by 25 basis points next week."
Traders also dismissed a separate report from the Institute for Supply Management, which indicated an unexpected and modest acceleration in the contraction of U.S. manufacturing activity in October. The ISM reported its manufacturing PMI fell to 46.5 in October from 47.2 in September, with any reading below 50 signaling contraction. Economists had anticipated an increase to 47.6.
This unexpected drop brought the manufacturing PMI to its lowest point since matching figures recorded in July 2023.
Looking ahead, the outcome of the U.S. presidential election is expected to dominate attention next week, alongside reports on factory orders, service sector activity, and consumer sentiment.