Treasuries Surge In Reaction To Weaker-Than-Expected Jobs Data

(RTTNews) - Treasuries moved sharply higher during trading on Friday, extending the strong upward move seen over the two previous sessions.

Bond prices surged early in the session and remained firmly positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 9.0 basis points to 4.086 percent.

With the extended slump on the day, the ten-year yield plunged to its lowest closing level in five months.

The rally by treasuries came after the Labor Department released a closely watched report showing much weaker than expected U.S. job growth in the month of August.

The report said non-farm payroll employment crept up by just 22,000 jobs in August after climbing by an upwardly revised 79,000 jobs in July.

Economists had expected employment to increase by 75,000 jobs compared to the addition of 73,000 jobs originally reported for the previous month.

The report also showed the uptick of 14,000 jobs that had been reported for June was downwardly revised to a decrease of 13,000 jobs.

Meanwhile, the Labor Department said the unemployment rate inched up by 4.3 percent in August from 4.2 in July, in line with economist estimates.

The report increased investor confidence that the Federal Reserve will lower interest rates by at least a quarter point later this month.

CME Group's FedWatch Tool is currently indicating a 90.0 percent chance of 25 basis point rate cut at the September 16-17 meeting and a slim 10.0 percent chance of a 50 basis point rate cut.

"As the Fed prepares for its upcoming meeting, policy makers will likely focus on the weakness in the job market to defend their decision to cut rates," said Jeffrey Roach, Chief Economist for LPL Financial.

He added, "The labor data is probably not weak enough for the Fed to cut by 50 basis points given inflation persistence, so as of now, our expectations are for a 25 basis point cut."

Next week's trading is likely to be driven by reaction to reports on consumer and producer price inflation, which could further impact the outlook for interest rates.