The yield on the 2-year Treasury note fell on Friday, a day after hitting a 16-year high, after a slightly weaker-than-expected increase in June payrolls failed to dissuade traders from betting on more rate hikes.
The 2-year Treasury was last trading down about 7 basis points at 4.937% after briefly reaching a 16-year high of 5.120% on Thursday following a strong ADP jobs report. The yield on the 10-year Treasury note added about 2 basis points to 4.062%.
Yields and prices have an inverted relationship and one basis point equals 0.01%.
Treasurys
The Labor Department reported on Friday that nonfarm payrolls rose by 209,000 in June and the unemployment rate was 3.6%. This came in below consensus estimates from Dow Jones calling for an increase of 240,000.
But other parts of the June jobs report showed inflationary signs that could fuel the Federal Reserve to resume hiking later this month. Wages increased by 4.4% on an annual basis, coming in slightly above estimates. The unemployment rate also declined to 3.6% from 3.7% in May.
Traders on Friday kept their bets that the Fed would resume hiking later this month. Fed futures point to a 92% chance that the central bank will raise by a quarter point later this month, about the same odds as one day ago, according to CME Group's FedWatch tool.
"In our view, there is nothing in the data that would cause the Federal Reserve (Fed) to hit the brakes on a rate hike in July," said Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors. "The labor market continues to show sufficient strength that we would expect the Fed to follow through with another 25-basis point rate hike in July, and make few changes to its previous statements regarding the strength of the labor market."
The Fed has four more policy meetings to potentially change interest this year. Markets are widely expecting a rate increase to be announced at this month's meeting, but the picture is less clear for the remainder of the year. Fed Chairman Jerome Powell suggested last week that a strong labor market was a key driver behind the central bank's restrictive policy approach.
Correction: This story has been updated to reflect wage growth came in slightly above expectations.