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Treasury yields fell on Friday as investors overlooked the better-than-expected headline gains in the April jobs report and focused on the weak wage growth and how that could affect the direction of US interest rate increases.

Yield on the 10-year note, up less than a basis point ahead of the non-farm payroll report, zigzagged between further gains and losses and is trading 1.3 bps lower at 2.340 per cent at pixel time.

While at first glance, the headline figure of 211,000 jobs gain in April seems to underscore the Federal Reserve’s view that the economy’s weak first quarter performance was probably just a blip, the slowdown in wage growth could be an area of concern for policymakers and weaken the case for another interest rate increase as soon as June.

“The one disappointment was the fact annual wage growth slipped to 2.5% from 2.6% despite the MoM increase matching the 0.3% consensus forecast,” said James Knightley, senior economist at ING. “The fact that we are still quite a way away from 3%+ wage growth means that there is no real pressure on the Fed to accelerate the pace of interest rate hikes.”

The view was echoed by Neil Wilson, senior market analyst at ETX Capital, who described April jobs report as “Goldilocks numbers”.

“Not too hot and not too cold,” said Mr Wilson. “As we needed it, today’s nonfarm payrolls are just right to nail on a June rate hike but not enough to make us think the Fed will turn more hawkish.”

Indeed, even as bond yields moved lower on Friday, fed fund futures are now pointing to a 100 per cent chance of a rate hike in June, up from the 94 per cent recorded on Thursday.

Stock futures also rose on the report. Both the S&P 500 and the Nasdaq Composite are expected to open 0.2 per cent higher at the open, while the Dow is set to start the day largely unchanged.

The dollar – as measured by the DXY index – reversed a 0.1 per cent gain to trade 0.04 per cent lower.

Copyright The Financial Times Limited 2018. All rights reserved.

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