Article Highlights

  • Manufacturing, consumer sentiment data strong
  • Confusion over wage revisions whipsaws yields
  • North Korea concerns keep bid for bonds
  • Treasury bills reflect debt ceiling concerns
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U.S. Treasury yields rose on Friday as strong manufacturing data boosted sentiment that economic growth is solid, even after the August jobs report was weaker than economists expected.

The Institute for Supply Management said its index for factory activity soared to 58.8 in August, the highest reading since April 2011.

U.S. consumer sentiment also climbed in August.

“It’s more positive data, rolling on what was although not a great employment report, nothing to worry about either,” said Thomas Simons, a money market economist at Jefferies in New York.

The Labor Department said earlier on Friday that nonfarm payrolls increased by 156,000 last month, below expectations. Average hourly earnings rose three cents, or 0.1 percent, after advancing 0.3 percent in July.

Treasury yields fell immediately after the report on what analysts said was a data provider erroneously showing a downward revision in July wage growth.

After it became clear there was no such revision, yields turned higher.

“People initially looked at the hourly earnings, the revision down. That’s been changed,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Benchmark 10-year yields fell to 2.10 percent in the immediate aftermath of the jobs data. They rose to 2.16 percent after the strong manufacturing figures.

The Federal Reserve is expected to announce plans to pare its balance sheet at its September meeting, with an interest rate hike in December also viewed as possible.

The jobs data “stills sets up for the balance sheet reduction in September, and we’ll still see a 50/50 chance of a December rate hike,” Lederer said.

Trading volumes have fallen as investors hesitate to buy Treasuries with yields near their lowest levels since late last year.

On Tuesday, 10-year Treasury yields dropped as low as 2.086 percent, the lowest since Nov. 10, on safety buying after North Korea fired a ballistic missile over Japan’s northern Hokkaido island into the sea.

August was the best month for Treasuries since June 2016, with a total return of 1.13 percent, according to Bank of America/Merrill Lynch Fixed Income Index data.

Some Treasury bill yields also jumped on Friday on concern over whether the U.S. government will be able to raise the debt ceiling later this month.

Yields on bills that mature on Oct. 5 jumped to 1.25 percent, up from 1.11 percent late on Thursday.