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Treasuries Climb Off Early Lows But Remain Firmly Negative

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After coming under pressure early in the session, treasuries regained some ground over the course of the trading day on Friday.

Bond prices climbed well off their worst levels of the day but remained in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 5 basis points to 2.377 percent after reaching a high of 2.456 percent.

Worries about the outlook for interest rates weighed on treasuries early in the session after the Labor Department’s closely watched monthly jobs report showed employment increased by less than expected in March but the unemployment rate still fell to a new pandemic-era low.

The report showed non-farm payroll employment jumped by 431,000 jobs in March after surging by an upwardly revised 750,000 jobs in February.

Economists had expected employment to spike by 490,000 jobs compared to the addition of 678,000 jobs originally reported for the previous month.

While the job growth in March fell short of estimates, revisions to data for the two previous months showed employment increased by 95,000 more jobs than previously reported.

The strong job growth still contributed to a drop in the unemployment rate, which dipped to 3.6 percent in March from 3.8 percent in February. The unemployment rate was expected to edge down to 3.7 percent.

With the bigger than expected decrease, the unemployment rate fell to its lowest level since hitting 3.5 percent in February of 2020.

Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics, said the report “reinforces the Federal Reserve’s strong resolve to rein in inflation and bolsters the case for a 50 basis point rate hike at the May meeting.”

Selling pressure waned over the course of the morning, however, as a separate report from the Institute for Supply Management unexpectedly showed a modest slowdown in the pace of growth in U.S. manufacturing activity in the month of March.

The ISM said its manufacturing PMI dipped to 57.1 in March from 58.6 in February. While a reading above 50 still indicates growth in the sector, economists had expected the index to inch up to 59.0.

The recovery attempt by treasuries also came amid concerns about the economic outlook following an inversion of two-year and ten-year treasury yields, which is often a precursor to a recession.

Reports on service sector activity, the U.S. trade deficit, and factory orders are likely to attract attention next week along with the minutes of the latest Federal Reserve meeting.

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