The yield on the benchmark two-year Treasury note jumped to its highest level in more than 10 years Friday after the economy added more jobs than expected in August and wages posted their biggest increase of the post-recession period.
The Labor Department said nonfarm payrolls grew by 201,000 in August while average hourly earnings rose 2.9 percent for the month on an annualized basis, evidence that the long-awaited rebound in wages may be starting to show. Economists polled by Reuters had expected payrolls to increase by 191,000.
The yield on the benchmark 10-year Treasury note rose after the jobs results and was higher at around 2.939 percent at 4:09 p.m. ET, while the yield on the 30-year Treasury bond was up at 3.102 percent. Bond yields move inversely to prices. The yield on the two-year note was last seen at 2.707 percent, its highest level since July 30, 2008.
The unemployment rate, meanwhile, held steady near a low of 3.9 percent. Average hourly earnings jumped 10 cents during the month, the largest increase in the rate since April 2009 and likely offering ammunition to hawkish Federal Reserve officials who are eager to curb burgeoning signs of inflation.
Yields slipped from their highs midday after multiple news sources reported that President Donald Trump said another $267 billion in China tariffs are ready to go in addition to the $200 billion already proposed.
The Fed is widely expected to increase the federal funds rate later this month as it moves to normalizes years of easy monetary policy. Of greater importance, however, is whether Fed officials will increase rates a fourth time this year in December.
"The data is becoming even more important than ever now as the market tries to decide whether the Fed will raise a fourth time this year in December or take a pause," Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in an emailed statement.
"Average hourly earnings grew faster than expected and more jobs were created than expected which on balance should help push the Fed in the direction of raising rates," he added.
The central bank lowered borrowing costs throughout the economy years ago to help ease the burden of the financial crisis and economic recession, but has since started to reduce its sizable balance sheet.
"August can be quirky month, and we thought [the payroll number] was going to be a weaker number off the softer ADP data yesterday," said Craig Bishop, vice president of U.S. fixed income at RBC Wealth Management. "The wage number was the big thing for the markets."
Dallas Fed President Robert Kaplan is expected to take part in a moderated Q&A at the Dallas Fed's Energy and Economy Conference; while Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren are both set to be present at the Federal Reserve Bank of Boston's 62nd Economic Conference on Friday.