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U.S. Treasury yields fell after a weaker-than-expected March jobs report underlined that even more economic pain is to come.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.593% was down 3.7 basis points to a three-week low of 0.587%, adding to a 15.7 basis point drop this week.
The 2-year note rate TMUBMUSD02Y, 0.221% was virtually unchanged at 0.211%, leaving a 4.6 basis point decline intact for the week. The 30-year bond yield TMUBMUSD30Y, 1.215% fell 5.4 basis points to 1.214%, extending a decline of 11.8 basis points. Yields and debt prices move in opposite directions.
What’s driving Treasurys?
The Bureau of Labor Statistics reported the U.S. economy lost 701,000 jobs in March, with economists polled by MarketWatch, on average, expecting an 84,000 drop. The unemployment rate jumped to 4.4%, from 3.5% in the previous month.
Still, analysts say the report captures only a small fraction of the damage inflicted on the U.S. economy by the coronavirus outbreak.
A more up-to-date indicator of how swiftly companies and businesses were laying off workers was the latest weekly new jobless claims numbers on Thursday, which showed Americans filing unemployment claims had surged to a record 6.65 million last week.
In other data, the Institute for Supply Management’s gauge assessing the health of the U.S. services sector in March fell to 52.5%, from 57.3% in the previous month. Any reading above 50% represents an expansion in economic activity.
In Europe Friday, the IHS Markit Composite Purchasing Managers’ Index fell from 51.6 in February to 29.7 in March, the lowest level since the survey started in 1998, meaning euro-zone GDP could already be falling at an annualised rate of nearly 10%.
Investors will continue to watch the pace of the Federal Reserve’s bond purchases as the central bank looks to calm and soothe the functioning of the Treasury market. The latest report of the Fed’s balance sheet showed it had expanded to a record $5.81 trillion for the week ending April 1.
In an indication of the Fed’s sway over the bond-market, yields came off their lows after the central bank announced it would slow its pace of bond-buying.
The New York Fed said it would buy $200 billion of government bonds from next Monday to Thursday, an average of $50 billion per day. Over the same period this week, the Fed bought around $278.5 billion of Treasurys over this week’s four-day period, an average of nearly $70 billion per day.
See: Why Friday’s jobs report for March won’t tell the full story of a U.S. economy in crisis
What did market participants’ say?
“This is really only a taste of things to come. This data only covers the very start of the lockdown period so we know there are many more people unemployed than what we can see here,” said James McCann, senior global economist at Aberdeen Standard Investments.
“Markets are anticipating mechanisms, everybody knew the numbers were going to be bad. The fact that the number was down 701,000, but the consensus was much lower than that, just speaks to the impossibility of forecasting economic data right now,” said Scott Clemons, chief investment strategist at Brown, Brothers Harriman, in an interview.
