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US Jobs Data Signals Possible Rate Hike, Impacting Treasury Yields on September 4

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Secondary market

US Treasury yields fell across the yield curve for the week ending September 4, 2015, after the employment data from the US Bureau of Labor Statistics hinted at a rate hike decision later this month. Long-term Treasuries saw an upward movement due to the rise in demand for a safe-haven as the stock market fell last week.

The fall in yields was restricted to single digits, in the range of one to seven basis points. The yield on the benchmark ten-year Treasury note fell by six basis points week-over-week, ending at 2.13%.

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Economic indicators

Several economic indicators emerged in the week ending September 4. The most crucial one—the one that directed yield movement—was the non-farm payrolls report. Non-farm payrolls rose by 173,000 in August, while the unemployment rate fell to 5.1% from 6.1% one year ago.

The Fed has repeatedly indicated improvement in US employment as one of the key factors in its upcoming rate hike decision.

US manufacturing activity slowed in August, according to the ISM (Institute for Supply Management). The August US Manufacturing PMI (Purchasing Managers’ Index) stood at 51.1 index points, down from the 52.7 recorded in July. This slowdown is mainly attributed to the appreciation of the dollar and a fall in crude oil prices, which leads to cost-cutting in the energy sector.

Companies such as Nike (NKE), Boeing (BA), and Apple (AAPL), which have global operations, have seen variability in their earnings due to the slowdown in the global growth.

Investment impact

The fall in Treasury yields positively influenced bond mutual funds. Noteworthy impacts include:

  • The weekly return of the Vanguard Long-Term Treasury Fund Shares (VUSTX) was up by 0.51%. The VUSTX invests almost 94% of its assets in Treasury securities that have a maturity of >10 years.
  • The Dreyfus US Treasury Long-Term Fund (DRGBX), which invests almost 92% of its assets in Treasury securities that have a maturity of >10 years, was up by 0.30% week-over-week.

In the next part of this series, we’ll look at the impact these factors have had on Treasury bills.

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