Strong Jobs Report, Rate Hike Bets Weigh on Treasury Bond ETFs

Treasury bond exchange traded funds resumed their retreat, with benchmark yields climbing after a strong March jobs report provided further support for a rising interest rate outlook.

On Friday, the iShares 7-10 Year Treasury Bond ETF (IEF) fell 0.4%. Meanwhile, yields on benchmark 10-year Treasury notes rose to 2.358%. Bond yields and prices have an inverse relationship.

U.S. employers added 431,000 jobs over March, marking 11 consecutive monthly gains above 400,000, the longest such streak of growth in records dating back to 1939, the Wall Street Journal reports. Meanwhile, the unemployment rate dipped to 3.6% from 3.8%, approaching the February 2020 pre-pandemic rate of 3.5%, a 50-year low.

“The labor market is really strong. Why is this data not being celebrated more? It’s just the fact that inflation swamps everything,” Michael Antonelli, managing director and market strategist at Baird, told the WSJ.

Bond investors have been particularly watching wage growth due to its effects on overall inflation. The March data revealed that wages are still rising at a rapid pace, returning to trend after being nearly flat over the previous data release.

“Overall, this is an extremely consensus payrolls report that will keep the Fed on track” to raise rates by half a percentage point at its May meeting, Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, wrote in a note to clients, according to the Wall Street Journal.

A closely watched part of the yield curve also reinverted, following the strong jobs report. The yield curve between two-year and 10-year notes inverted for the third time this week.

“The market is reading it as things are quite tight and the Fed has to tighten rather soon and rather quickly,” Gennadiy Goldberg, an interest rate strategist at TD Securities, told Reuters.

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