February 1, 2019 / 2:12 PM / 7 months ago

TREASURIES-Yield curve flattens after surge in U.S. job growth

(Adds context, yields, analyst quotes)

By Kate Duguid

NEW YORK, Feb 1 (Reuters) - Yields on shorter-dated U.S. Treasury notes jumped on Friday morning, flattening the yield curve, after government data showed job growth surged in January, just days after the Federal Reserve expressed caution about further interest rate hikes this year.

The U.S. Labor Department’s closely watched employment report showed employers hiring the most workers in 11 months, with no “discernible” impact on job growth from a 35-day partial government shutdown. However, the longest shutdown in history, which ended a week ago, pushed up the unemployment rate to a seven-month high of 4.0 percent.

The report comes two days after the Fed signaled that it may pause hiking interest rates because of softness in the economy and financial market volatility.

“If the Fed’s message on Wednesday was a dovish reaction to the data, well even in the last few days, the data has improved,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

“The question for financial markets over the next few trading sessions is whether the dovish outlook from the Fed was a reaction to data inputs or whether it represents a new reaction function to the same data.”

Two-year yields, which reflect traders’ expectations of interest rate hikes, rose faster than 10-year yields. The two-year yield was last up 2 basis points to 2.48 percent, with the ten-year yield up 1.2 basis point. That flattened the yield curve, measured as the spread between two- and 10-year yields to 16.1 basis points. (Reporting by Kate Duguid Editing by Chizu Nomiyama and David Gregorio)

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