By Ellie Ismailidou, MarketWatch
Weakest-ever reading on wage growth sent 10-year yield to a
three-week low
Treasury yields plummeted on Friday, finishing at the lowest
level since July 8, after the Labor Department said U.S. employees'
wages and benefits rose a record-low 0.2% in the second
quarter.
Friday's moves wrapped a monthly rally in which Treasury yields
recorded their largest three-week decline since April 3 and their
largest monthly decline since January, pushed lower by falling
commodity prices and a decline in inflation expectations.
Read: July's Treasury rally was fueled by market turbulence
(http://www.marketwatch.com/story/julys-treasury-rally-was-fueled-by-market-turbulence-2015-07-31)
The yield on the 10-year Treasury slid 6.1 basis point on the
day and 12.8 basis points over the month to 2.207%, according to
Tradeweb. That is only 0.1 basis point above the 2.206% mark hit on
July 8. The yield last closed below 2.206% on June 1.
The yield on the two-year note , fell 5.45 basis points to
0.676% on the day but rose 3.9 basis points over the month. And the
yield on the 30-year bond , declined 4.8 basis points on the day
and 26.3 basis points over the month to 2.914%.
On Friday, the wage growth number, the smallest gain in the
33-year history of the report
(http://www.marketwatch.com/story/us-employment-cost-index-decelerates-sharply-in-second-quarter-2015-07-31),
was interpreted as an indication that the labor market may not be
as healthy as the unemployment rate suggests. That in turn could
lead the Federal Reserve to push back its first interest-rate
increase
(http://www.marketwatch.com/story/sharp-deceleration-in-employment-costs-gives-fed-a-reason-to-delay-rate-hike-2015-07-31)
in nearly a decade.
The weak reading suggests the U.S. economy is still far from
reaching the Fed's 2% inflation target, said Kathy Jones, chief
fixed-income strategist at Schwab Center for Financial
Research.
"With falling commodity prices weighing on the market, the only
support for inflation was supposed to come from the wage front. Now
even that comes into question," Jones said.
While U.S. stocks moved slightly lower
(http://www.marketwatch.com/story/us-stocks-sp-eyes-2-rise-for-month-but-month-end-volatility-seen-2015-07-31),
Chinese stocks fell, putting a cap on their .
The reaction to the wage data added to the rally that began on
Thursday on so-called end-of-month index extension buying--a form
of technical buying that occurs because bond portfolios that track
indexes need to be rebalanced at the end of the month.
The rebalancing is done to reflect changes in the index due to
the issuance of new bonds on one hand and coupon payments and
redemptions on the other.
In Europe, government bond yields were slightly lower on Friday
after a big drop in German retail sales added to Thursday's mixed
economic data that pointed to subdued annual inflation and slow
growth in the labor market. The yield on the benchmark German
10-year bund inched 0.1 basis point lower to 0.612%.
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