* Nonfarm payrolls beat forecasts, unemployment steady at 4.3%, Fed rate-hike odds dip
* US-Iran ceasefire prospects monitored as Gulf tensions persist
* 10-year Treasury yield poised for first weekly decline after two weeks of gains (Updates to afternoon New York trading)
NEW YORK, May 8 (Reuters) – U.S. Treasury yields declined on Friday after a stronger-than-expected payrolls report slightly dampened expectations for a rate hike from the Federal Reserve this year, while investors remained focused on whether a U.S. ceasefire with Iran would hold. The Labor Department said nonfarm payrolls increased by 115,000 jobs last month, well above the 62,000 estimate of economists polled by Reuters, after an upwardly revised 185,000 gain in March. The unemployment rate held steady at 4.3%, which matched expectations.
“Unless you have a blowout labor market across the board, you probably need a lot to move the market one way or the other,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.
“Today it’s just the market telling you that it was within reason, and everything is still kind of focused in on the inflationary side.”
MARKETS PRICE IN STEADY RATES Expectations the Fed will hold rates steady through its December meeting inched up to 74.5% from 70.1% in the prior session, according to CME’s FedWatch Tool, while views for a hike of at least 25 basis points decreased to 14.9% from 22.5%.
Since the war in Iran began on February 28, yields have steadily climbed as inflation worries dented market expectations for rate cuts from the Federal Reserve this year.
Bank of America U.S. economist Aditya Bhave said in a note that the firm had pushed the two rate cuts in its Fed forecast out from September and October of this year to July and September of 2027 as “the data simply don’t warrant rate cuts this year.”
The yield on the benchmark U.S. 10-year Treasury note fell 3.8 basis points to 4.356% and was down about 2 basis points for the week, on track for its first weekly decline after two straight weeks of gains. Federal Reserve Bank of Chicago President Austan Goolsbee said the April hiring data shows more stability in the employment sector amid worrisome developments on the inflation front. The United States said it expected an Iranian response as soon as later on Friday to its latest proposal to end the war, even as U.S. and Iranian forces clashed in the Gulf and the United Arab Emirates came under renewed attack.
The yield on the 30-year bond shed 3.1 basis points to 4.938% and was poised for a weekly decline, its first in three. U.S. crude rose 0.37% to $95.16 a barrel and Brent rose to $100.84 per barrel, up 0.78% on the day, but they were off earlier highs in volatile trading. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index fell to an all-time low of 48.2 this month from a final reading of 49.8 in April, as higher gas prices weighed on household finances and buying power.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 47.8 basis points.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, declined 3 basis points to 3.889%, and was virtually flat on the week.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.619% after closing at 2.625% on Thursday.
The 10-year TIPS breakeven rate was last at 2.455%, indicating the market sees inflation averaging about 2.5% a year for the next decade.
(Reporting by Chuck Mikolajczak; Additional reporting by Karen Brettell; Editing by Tomasz Janowski and Edmund Klamann)
