Treasury Yields Close Lower as Economic Outlook Overshadows Jobs Report -- Update
|07/02/2020 | 05:16pm|
By Julia-Ambra Verlaine
U.S. government bond yields reversed an early climb and closed lower Thursday, with investors weighing persistent worries about the economic outlook against a better-than-expected monthly jobs report.
The yield on the 10-year Treasury note, a key benchmark for borrowing costs on everything from mortgages to student loans, climbed above 0.71% in the wake of Thursday morning's data, according to Tradeweb. But it then retraced the move, settling at 0.670%, compared with 0.682% on Wednesday. Bond yields rise as prices fall.
Some analysts called the reversal a signal that investors believe that a full economic recovery will take time. The 10-year yield tends to rise and fall with investors' expectations for growth and inflation and has traded within a relatively narrow range around 0.7% in recent weeks, a stall many attribute to economic worries and aggressive monetary stimulus.
The 10-year yield initially climbed after data showed that the jobless rate fell to 11.1% in June and that the U.S. added 4.8 million jobs, boosting hopes that the economy will avoid investors' worst-case scenarios, but it reversed course later in the session, to snap a two-session streak of gains.
Among the worries dragging on bond yields: concern that a recent resurgence in the pandemic will force new lockdowns. That could slow the recovery, prompting the central bank to keep interest rates low. It could also limit any pickup in inflation, increasing the appeal of government debt by preserving the purchasing power of its fixed-coupon payments.
Even with big job gains in May and June, employment is still well below levels from early in the year. "With the spread of the virus accelerating again, we expect the recovery from here will be a lot bumpier and job gains far slower on average," Michael Pearce, senior U.S. economist at Capital Economics, said in a note.
Asset managers, including Neuberger Berman, expect the economy will grow over the next year, but remain cautious.
"We are unable to reconcile the size and speed of the stock market rebound at the beginning of June with what is likely to be a gradual reopening process and moderate medium-term growth," said Erik Knutzen, chief investment officer of multiasset-class at Neuberger Berman.
Analysts expect the economy won't return to precrisis levels before the end of next year. Many think it will taken even longer for unemployment to return to 3.5%.
Amrith Ramkumar contributed to this article
Write to Julia-Ambra Verlaine at Julia.Verlaine@wsj.com