March 8, 2019 / 2:16 PM / a year ago

TREASURIES-Yields lower after February job growth way below forecasts

(Recasts; adds further report details, analyst quotes; updates yields)

By Kate Duguid

NEW YORK, March 8 (Reuters) - Treasury yields were lower, yet relatively stable on Friday after U.S. job growth dropped unexpectedly in February, with the economy creating only 20,000 jobs amid a contraction in payrolls in construction and several other sectors.

This could raise concerns about a sharp slowdown in economic activity and adds to the Federal Reserve’s case for putting its interest-rate hiking cycle on hold. But yields across maturities were down within 1 to 2 basis points, suggesting the market believes this could be a one-off event.

“Treasury yield moves speak to (the market’s) willingness to look through this,” said Jonathan Hill, U.S. rates strategist at BMO Capital Markets. “We’ve seen similarly low levels before. May 2016 was 15,000. September 2017 was 18,000. So if it’s a one-off month of weak job growth and we return to that 200,000 level, there will be a willingness to look through this read.”

While February’s job growth was the weakest since September 2017, other details of the closely followed employment report were strong. The unemployment rate fell back to below 4 percent and annual wage growth was the best since 2009.

A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped to 7.3 percent after hitting an 11-month high of 8.1 percent in January because of the partial U.S. government shutdown.

The 10-year Treasury yield, a proxy for investor sentiment about the overall health of the economy, was 1.5 basis points lower at 2.623 percent. The two-year yield, which reflects traders’ expectations for interest rate hikes, was 1.6 basis points lower, last at 2.453. (Reporting by Kate Duguid Editing by Chizu Nomiyama and Jonathan Oatis)

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