By Kate Duguid
NEW YORK, Aug 6 (Reuters) – The Treasury yield curve flattened slightly on Thursday afternoon as government bond investors, who have expressed doubt about the stability of the U.S. labor market’s recovery this past week, held off from making major moves ahead of Friday’s federal jobs report.
According to a Reuters survey of economists, the U.S. government report is likely to show that nonfarm payrolls increased by 1.6 million in July, down sharply from the record 4.8 million jobs created in June.
The spread between the two- and 10-year Treasury yields , the most common measure of the yield curve, flattened by 1.2 basis points on Thursday afternoon, a modest bearish signal. Earlier this week, demand for safe-haven Treasuries drove the yield of the five-year note to an all-time low, and the yield of the benchmark 10-year note to its second-lowest ever.
Three separate data reports this week showed a slowdown in the labor market’s recovery as a resurgence in coronavirus infections in the United States has hampered efforts to reopen the economy.
Jobless claims fell last week the U.S. Labor Department said on Thursday, but the numbers remain high, suggesting the labor market is stalling as the country battles a resurgence in new COVID-19 cases.
“It was a beat, and I’m not questioning that it was a beat. But it is still over 1 million jobless claims. Prior to the pandemic these would have been record numbers,” said Stan Shipley, macro research analyst at Evercore ISI.
Data from global outplacement firm Challenger, Gray & Christmas on Thursday showed a 54% increase in U.S. job cuts from June to July. Earlier in the week ADP data showed a sharp step-down in private payrolls in July.
While poor employment data has been driving yields lower this week, some analysts said Friday’s report would need to be exceptionally bad for yields to fall much further.
“Treasury yields will be entering Friday’s payroll release at the lower end of their recent trading range, implying that the update on the employment landscape will need to be dismal enough to justify the slow rally observed over the past few weeks,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
The benchmark 10-year yield was last down 0.3 basis point on the day to 0.540%. The two-year yield was last up 0.2 basis point to 0.119% and the long bond was down 1.7 basis points to 1.202%. (Reporting by Kate Duguid Editing by Nick Zieminski and Tom Brown)