US Treasury Bond Yields Fluctuate Amid Strong July Employment Data

3-Year Bond Rate Rises to 3.134% per Annum

[Asia Economy Reporter Minji Lee] The yield on government bonds closed higher on the 8th. Despite concerns about an economic recession, the U.S. employment data showed stronger-than-expected results, reflecting expectations that aggressive interest rate hikes could continue.

In the Seoul bond market, the 3-year government bond yield closed at 3.134% per annum, up 5.5 basis points (1bp = 0.01 percentage points) from the previous trading day. The 10-year yield rose 5.3bp to 3.177% per annum, while the 5-year and 2-year yields increased by 5.2bp and 6.4bp, closing at 3.151% and 3.125% per annum, respectively. The 20-year yield rose 2.5bp to 3.140% per annum. The ultra-long-term 30-year and 50-year yields increased by 1.1bp and 1.0bp, recording 3.075% and 3.028% per annum, respectively.

Recently, bond yields had been declining amid growing concerns about an economic recession. This was due to expanded expectations that the U.S. Federal Reserve (Fed) would moderate its tightening pace in response to economic slowdown fears. However, last week’s U.S. labor market data came out better than expected, causing government bond yields to turn upward again. According to the employment situation report released by the U.S. Department of Labor, nonfarm payrolls increased by 528,000 last month, significantly higher than the previous month’s 398,000. This figure was more than double the market forecast of 258,000 compiled by Bloomberg News.

Accordingly, the market is increasingly anticipating that the Fed may continue with a giant step (raising the benchmark interest rate by 75bp at once) in September, supported by the strong employment data. Already, on the 5th, the 10-year U.S. Treasury yield surged 13.7bp to 2.832% per annum, and the 2-year yield jumped 16.4bp to 3.214% per annum.

Yoon So-jung, a researcher at Korea Investment & Securities, explained, “Recently, concerns about the economy have been pushing yields down, while at the beginning of the month, employment and inflation data have been pushing yields up. Fundamentally, unless inflation and employment slow down and a Fed pivot (policy shift) is confirmed, the 10-year yield cannot break below the lower bound of its range solely on economic concerns.”