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Treasuries declined, pushing 10-year notes up closer to a 1% yield, as traders bet that a weaker-than-expected November jobs report will light a fire under Washington policy makers to get an economic stimulus deal done soon.
Under normal circumstances, a bad jobs report might prompt investors to seek a haven such as Treasuries, pushing their prices up and yields down. But as the pandemic damages the U.S. economy, traders are looking a step ahead, wagering that an unhealthy job market will prompt stimulus that diminishes the appeal of bonds.
Nonfarm payrolls increased by 245,000 in November from the prior month, according to the U.S. Labor Department, missing the median economist forecast for a 460,000 gain. And there was a worrisome decline in Americans participating in the labor force.
“This augers for more stimulus, possibly in the next few days,” Rick Rieder, the chief investment officer of global fixed income at BlackRock Inc., said on Bloomberg TV. That’s what is driving markets Friday, he said.
The yield on 10-year Treasuries climbed as much as 6.3 basis points to 0.97%, approaching 1%, a level it last surpassed in March. Singing a similar bad-news-is-good-news tune, the yield curve steepened and a key bond market gauge of inflation expectations for the next decade reached its highest since May 2019.
Yields are rising “as everyone just assumes that this locks in another $1 trillion of government spending, which it likely does,” Peter Boockvar, chief investment officer for Bleakley Advisory Group, said in a note.
The 10-year breakeven inflation rate, which derives traders’ inflation expectations from Treasuries, trades at just over 1.89%. The gap between 5- and 30-year yields steepened to almost 130 basis points, up from just under 126 at the end of the day on Thursday.
Elsewhere in markets, stocks climbed. The Bloomberg dollar index dropped to the day’s low after the labor report, putting it on course for its third consecutive weekly decline.
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