After showing a lack of direction over the course of the two previous sessions, treasuries moved to the downside during trading on Friday.
Bond prices regained some ground after coming under pressure in morning trading but remained firmly negative. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.8 basis points at 1.322 percent.
The weakness among treasuries came following the release of the Labor Department’s closely watched monthly employment report, which showed much weaker than expected job growth in the month of August.
The Labor Department said non-farm payroll employment rose by 235,000 jobs in August after soaring by an upwardly revised 1.053 million jobs in July.
Economists had expected employment to jump by about 750,000 jobs compared to the spike of 943,000 jobs originally reported for the previous month.
Despite the much weaker than expected job growth, the unemployment rate fell to 5.2 percent in August from 5.4 percent in July, matching economist estimates.
Fed officials have indicated inflation has reached their target but they need to see further improvement in the labor market before they begin tapering asset purchases and raising interest rates.
“While the Delta variant is driving renewed virus fear, the labor market recovery seems unlikely to go into reverse,” said Lydia Boussour, Lead US Economist at Oxford Economics. “Still, a slower pace of hiring amid a rapidly spreading Delta variant will warrant a patient tapering approach from the Fed.”
She added, “We believe The FOMC will opt to wait until the November meeting to make a formal tapering announcement, and start reducing asset purchases in December or January, depending on employment progress and inflation developments this fall.”
Meanwhile, a separate report released by the Institute for Supply Management showed U.S. service sector growth slowed from a record pace in the month of August.
The ISM said its services PMI fell to 61.7 in August after reaching an all-time high of 64.1 in July, although a reading above 50 still indicates growth in the sector. Economists had expected the index to drop to 61.5.
Following the long holiday weekend, the economic calendar for next week is relatively quiet, although traders are likely to keep an eye on the Federal Reserve’s Beige Book and a report on producer price inflation.
Bond trading could also be impacted by reaction to the results of the Treasury Department’s auctions of three-year and ten-year notes and thirty year bonds.