Bond Report: Treasury yields rise as investors start bracing for next week supply bulge

U.S. Treasury yields rose Friday as investors geared up for next week’s bond auctions after the monthly employment report showed the recovery in the U.S. labor market was continuing but at a slower pace.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.568% rose 2.7 basis points to 0.562%, while the 2-year note rate TMUBMUSD02Y, 0.136% was up a basis point to 0.117%. The 30-year bond yield TMUBMUSD30Y, 1.236% climbed 3.1 basis points to 1.229%. The weekly yield changes were largely in line with Friday’s action.

What’s driving Treasurys?

With the July jobs report out of the way, broker-dealers started pricing in a concession for the longer-dated bond auctions coming next week, in effect, pushing yields modestly higher to ensure that the market can take down the increased debt supply.

The U.S. Treasury Department had said this week it would increase auction sizes across the yield curve and especially for longer-term maturities as it looks to finance the government’s response to the COVID-19 pandemic.

Earlier Friday the Labor Department reported the U.S. economy had regained 1.76 million jobs last month, while the official unemployment rate fell for the third month in a row to 10.2% from 11.1%. However, the pace of job growth slowed sharply from previous months with many American states suffering sharply higher coronvirus cases in July.

Despite the improving economic data, analysts remain uncertain how the U.S. recovery will fare for the rest of the year unless lawmakers reach a deal soon on a coronavirus relief package.

Negotiations between the White House and Congressional Democrats have been stuck in a protracted stalemate, increasing the risk that there will be no stimulus bill until the summer recess is over. A last-chance effort to salvage a deal on a big new coronavirus aid package collapsed Friday, with both White House negotiators and congressional Democrats blaming the other side.

U.S.-China tensions looked set to heat up also after the Trump administration announced an executive order banning all transactions between U.S. businesses and China’s social media app TikTok and WeChat.

What did market participants’ say?

“While today’s jobs data was somewhat better-than-expected, we still think the economy needs further fiscal stimulus to fuel the economy on the road to recovery,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

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