U.S. Government Bond Yields Climb After Jobs Report Exceeds Expectations

U.S. Government Bond Yields Climb After Jobs Report Exceeds Expectations

U.S. government bond yields rose Friday after data showed the economy added more jobs than expected last month, a sign of ongoing growth.

The yield on the benchmark 10-year Treasury note rose, snapping a three-session streak of declines, settling at 1.727% compared with 1.672% before the report and 1.691% Thursday, according to Tradeweb.

Yields, which climb when bond prices fall, jumped after the Labor Department said the U.S. added 128,000 jobs last month, more than the 75,000 expected by economists surveyed by The Wall Street Journal. The agency also revised data from August and September to reflect gains of 95,000 more jobs than had previously been estimated.

Some investors said the data supported expectations that the Federal Reserve would pause cutting interest rates. Fed officials lowered interest rates Wednesday for the third time this year and signaled they think economic growth is strong enough for them to refrain from further moves.

Policy makers have said the cuts seek to cushion the economy from the effects of slowing global growth, exacerbated by persistent trade tensions between the U.S. and China. Many investors have been concerned that rising tariffs between the two nations could hurt gains in the manufacturing sector.

Now, unexpected labor market strength could lead economists to increase their forecasts for growth in the third and fourth quarters, said Gary Pollack, head of bond trading at Deutsche Bank Private Wealth Management.

“This makes the Fed look pretty smart,” he said. “Further rate cuts really aren’t justified. The economy’s not slowing as much as people thought.”

Bond yields briefly dipped and then rebounded after a closely watched gauge of U.S. manufacturing activity came in weaker than expected for October. The Institute for Supply Management said its manufacturers’ Purchasing Managers Index was 48.3 last month, below the 49.1 that had been forecast. Levels below 50 represent a contraction of activity. Weakening manufacturing data in recent weeks have sparked fears about a global slowdown.

Federal-funds futures, which investors use to bet on the path of central bank policy, show the odds of a rate cut by the end of January are less than 40%, compared with 48% Thursday, according to CME Group data.

Wages rose 3% last month from the same point a year ago, while the unemployment rate rose to 3.6% from 3.5% in September, the lowest since 1969.

Investors had expected that Friday’s data would be affected more by a 40-day strike at General Motors automotive plants that included the week of the Labor Department’s survey.

Strike activity was reflected in a 42,000 decline in auto manufacturing employment, the agency said. Excluding those positions, manufacturing jobs increased last month.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

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