US Treasuries came under renewed selling pressure on Friday after data showed booming job growth in March and inverted the US Treasury yield curve for the second time this week.
The yield on the two-year Treasury bond rose above that of the benchmark 10-year bond, a so-called inversion of a segment of the Treasury curve that is being watched closely by investors and policymakers. A yield curve inversion, which occurred on Tuesday for the first time since 2019, is typically a sign of an imminent recession and that monetary policy is too tight.
The two-year yield, which moves with interest rate expectations, rose as investors priced in an even more aggressive pace of Federal Reserve rate hikes after the Bureau of Labor Statistics reported strong job growth in March. The yield on the two-year note rose 0.12 percentage points to 2.45 percent.
In futures markets, investors are now pricing in between eight and nine more quarter-point rate hikes this year.
Data on Friday showed that the US enjoyed another month of strong job growth in March, adding 431,000 new jobs. That number was compared to a Reuters forecast of 490,000 and marks a drop from February’s revised figure of 750,000.
The yield on the 10-year US Treasury bond, which moves with expectations for economic growth and inflation, rose 0.04 percentage point to 2.37 percent.
“Usually this is a sign that policy has become too restrictive,” said Tom Simons, money market economist at Jefferies. However, he noted that while he believes the inversion of the yield curve is a fairly reliable indicator of a recession, it is not imminent.
“We still think we are 10 to 24 months away from a recession. . . The job market is doing reasonably well and the data we got today doesn’t suggest we’re headed for a recession,” Simons said.
The reversal comes after the worst quarter on record for Treasuries as investors eyed central banks tightening monetary policy to curb rising inflation. A Bloomberg index of total Treasury returns fell a record 5.6 percent in the first three months of the year.
Ewout van Schaick, head of multi-asset at NN Investment Partners, said Friday’s sell-off was “a continuation of last quarter’s trend” when investors pulled out of US Treasury bonds over fears that the Federal Reserve would Interest rates could dampen economic growth through interest rate hikes to fight inflation.
In equity markets, the benchmark S&P 500 and the tech-heavy Nasdaq Composite moved into positive territory after completing their worst quarter in two years. The S&P fell almost 5 percent in the first three months of 2022 and the Nasdaq fell 9.1 percent.
In Europe, the regional Stoxx 600 index, which fell nearly 7 percent in the first quarter, ended the day 0.5 percent higher. Germany’s Dax rose 0.2 percent and London’s FTSE 100 rose 0.3 percent.
Oil prices dipped slightly after falling on Thursday when the White House announced a “historic release” of its emergency reserves – and vowed to increase supply by about 1 million barrels a day for the next six months to help prices decreases that have increased since Russian President Vladimir Putin ordered the invasion of Ukraine.
Brent crude, the international benchmark, settled lower for the day at $104.39 a barrel.
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