U.S. Treasury prices dropped Friday even as the the August jobs data inputs missed as talk of potential tax cuts aided. The long bond was knocked back to the lowest since Aug. 24 while the five- and 10-years stumbled back to Monday lows while the two-year outperformed.
While data showed lower payrolls growth, wages and hours-worked alongside a higher unemployment rate, participants note that August and September jobs data are historically prone to wide revisions. The remaining data was mixed with a big miss on July construction spending, an upside surprise on August manufacturing and a lower, but still strong, consumer sentiment report.
The 30-year yield recently traded near 2.75% from an early 2.7135% low, 2.784% high and 2.725% close Thursday. The 10-year yield has headed back toward 2.14% from 2.10% low, 2.168% high and 2.122% close. The five-year yield was near 1.7235% from a 1.6742% low, 1.7466% high and 1.707% Thursday. The two-year yield was near 1.35% versus a 1.2979% low, a 1.354% high and 1.33% close.
The curve trade saw a steeper slope with the two- and 10-year yield gap widened to 81.3 from 79.2 as the spread unwinds from the tightest levels since August 2016 which marked the flattest levels in a decade. The five- and 30-year yield spread was steepened to 103.3 from 101.8.
The market initially trimmed the odds of another rate hike by year-end to a sub-25% chance before flipping back to a near 45% chance of a 25 basis point rate increase by the Dec. 13 Federal Open Market Committee meeting, against a 40% chance a week ago.
Data was a mix but read with an overall positive slant despite the jobs miss, which showed a 156,000 payrolls gain versus the 180,000 expected. The unemployment rate rose to 4.4% from 4.3% while the average hourly earnings missed at 0.1% versus the 0.2% expected and 0.3% in July.
The August Institute for Supply Management (ISM) manufacturing index rose to 58.8 in beating the 56.6 expected, from a drop to 56.3 in July. The August University of Michigan consumer sentiment revised down to 96.8 (was 97.6) missing the 97.4 consensus, against 93.4 in July and 95.1 in June. January. Construction spending fell another 0.6% in July following the 1.4% drop in June (revised down from -1.3%).