U.S. Treasury yields inch higher before jobs report

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What could rattle markets in 2021, even as vaccines are rolling out


U.S. Treasury yields added to their climb on Friday before the monthly employment report from the Labor Department which is likely to reflect the growing economic distress at the end of last year resulting from the third wave of coronavirus cases slowing business activity.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.092%

rose 1.9 basis points to 1.09%, while the 2-year note rate
TMUBMUSD02Y,
0.140%

edged 0.2 basis point higher to 0.141%. The 30-year bond yield
TMUBMUSD30Y,
1.855%

was up 1.3 basis points to 1.858%.

What’s driving Treasurys?

The U.S. Labor Department is expected to report 50,000 job gains in December, down from 245,000 in the prior month. The unemployment rate is forecast to rise 0.1% to 6.8%, and average hourly earnings to go up by 0.2%.

Investors fret the employment report could serve as a reminder of the U.S.’s economic pains due to the COVID-19 resurgence. A new and more transmissible variant of COVID-19 and increased travel over the holidays have helped to accelerate the pandemic’s trajectory.

At the same time, a weak jobs number could put pressure on Congress to introduce even more fiscal stimulus measures. Investors say the scope for more fiscal spending has widened after the Georgia Senate runoff elections delivered a Democratic majority to the upper chamber of Congress.

See: U.S. economy might lose jobs in December for first time since onset of pandemic

The U.S. tally for confirmed cases of the coronavirus that causes COVID-19 rose to 28.59 million on Friday, according to data collected by John Hopkins University.

Read: December U.S. jobs report could deliver reality check to bond-market bears

What did market participants say?

“Today’s non-farm payrolls report will be of particular interest in terms of gauging the market’s reaction function in the wake of the Democrats gaining the slimmest of Senatorial majorities,” said analysts at Rabobank.

“One could argue that weak activity data might be seen as bearish for [Treasurys] as this is likely to increase the odds of the Democrat moderates (and also Republicans) supporting the progressives bolder fiscal plans,” they said.



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