US government bonds sink further after bumper jobs report

US government bonds sink further after bumper jobs report

10-year Treasury yield reaches highest level in a year after strong employment data

The sell-off in US government bonds intensified on Friday after figures showing American job growth running far ahead of forecasts added to expectations of a rapid rebound in the world’s biggest economy.

The benchmark 10-year Treasury yield, a vital benchmark for global debt markets, climbed as much as 0.06 percentage points to 1.624 per cent, the highest level in a year. It later receded to 1.59 per cent.

The US added 379,000 jobs in February according to data from the labour department, considerably more than the 200,000 economists polled by Bloomberg predicted. The fresh sign of a strong economic recovery reignited investor concerns that resurgent inflation would hit returns on their bond holdings.

US stock-index futures, meanwhile, advanced following the closely watched jobs reports, signalling the S&P 500 would rise around 0.7 per cent and the tech-heavy Nasdaq Composite would rise 0.4 per cent. Both indices dropped on Thursday after Federal Reserve chairman Jay Powell provided scant detail on how he would address the recent bond market tumult.

Bond prices have been sliding in the opening weeks of this year, in a move that has accelerated in the past two weeks. Some analysts and investors had expected Powell to use his slot at an event hosted by the Wall Street Journal on Thursday to lend some support to the market, perhaps even signalling a willingness to formally hold yields down.

Instead, while he said the recent pick-up in yields — the flip side of falling prices — was “notable”, and that the US central bank would be “patient” in the face of a temporary rise in inflation, he gave no sense of immediate alarm.

“It looks like words are not enough,” said Joost van Leenders, senior investment strategist at Kempen Capital Management. “There’s still a lot of unrest with rising yields . . . historically rising yields aren’t bad for equities, the reason why it’s different this time is a lot of equities have high valuations, which are justified by low yields.”

Some analysts expect bond prices to continue falling unless Powell intervenes. “With the Fed, crucially, not yet showing signs of being intimidated by the bond market, the sell-off in rates risks extending,” said Ralf Preusser, global head of rates research at Bank of America.

In Europe, the region-wide Stoxx 600 index was flat by the afternoon, while London’s FTSE 100 benchmark climbed 0.5 per cent and Frankfurt’s Xetra Dax lost 0.2 per cent.

In Asia, China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2 per cent during its session, before closing down 0.3 per cent after Beijing set a target of “above 6 per cent” for economic growth in 2021.

Analysts pointed to the markedly lower growth target relative to recent years.

“There is, in fact, not much surprise from the government work report except for the super-low GDP [gross domestic product] target,” said Iris Pang, chief economist for Greater China at ING, who estimated growth would be 7 per cent this year. “This makes me feel uneasy as I don’t know what exactly the government wants to tell us about the recovery path it expects.”

Brent crude, the international benchmark, rose more than 2 per cent to $68.48 a barrel, a day after Opec and its allies decides against introducing large increases to their output. “The strong performance in commodities suggests that it is one asset class where investors have moved,” said van Leenders.

Hudson Lockett in Hong Kong and Leke Oso Alabi

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