Government bonds soften ahead of US jobs data

Global government bonds sold off ahead of US jobs data that could show inflationary pressures are broadening and tip the Federal Reserve closer to reining in its pandemic-era monetary stimulus.

The yield on the 10-year US Treasury note, which tends to rise with expectations of inflation or interest rate increases that reduce the appeal of the fixed interest securities, added 0.03 percentage points to hit 1.6 per cent for the first time since early June. Bond yields move inversely to prices.

German and UK government debt prices also fell, while Europe’s Stoxx 600 equity benchmark dropped 0.3 per cent. London’s FTSE 100 traded flat.

Economists polled by Bloomberg expect the US government’s monthly non-farm payrolls report to show employers in the world’s largest economy hired 488,000 new workers in September, more than double the number recorded in the previous month.

Perceptions that current high rates of US inflation have peaked could be upended by a resurgence in hiring, accompanied by evidence that wages are rising, analyst said.

“Markets are still positioned for inflation being transitory,” said Sonja Laud, chief investment officer at Legal & General Investment Management, after headline US price rises topped 5 per cent for three consecutive months but could mostly be explained by supply chain disruptions related to Covid-19.

“Stronger labour market data could indicate structural [inflation] factors are becoming stickier,” she added.

The Fed has already signalled that it is moving towards reducing its $120bn of monthly debt purchases that have lowered borrowing costs and boosted equity markets since last March. Half of its policymakers have also predicted the central bank will raise interest rates from record lows next year.

The yield on Germanys’ 10-year Bund rose 0.04 percentage points to minus 0.153 per cent, its highest since late May. The UK’s 10-year gilt yield added 0.05 percentage points to 1.124 per cent.

The dollar index, which measures the US currency against six others, rose 0.1 per cent to a reading of 93.4, close to its highest point of the last year.

In Asia, stocks rallied as markets echoed activity on Wall Street in the previous session after US lawmakers agreed to lift the nation’s debt ceiling temporarily, and cheered better than expected Chinese economic data.

The S&P 500 closed 0.8 per cent higher on Thursday.

Japan’s Topix led the region with a rise of as much as 1.8 per cent before closing 0.9 per cent higher.

China’s CSI 300 index of Shenzhen and Shanghai-listed stocks reopened from a market holiday this week to rise 1.4 cent. A purchasing managers’ index produced by Caixin for the nation’s services sector, which collates executives’ responses to questions on topics including hiring and new orders, rose to a higher than expected 53.4 for September.

The reading, above the 50 threshold that separates expansion from contraction, indicated solid growth and helped alleviate expectations of another month of decline that had mounted during the market closure.

But new measures to boost Chinese coal production in the wake of an energy crunch and rolling blackouts weighed on coal prices and the shares in the country’s biggest listed miners.

Thermal coal futures trading in Zhengzhou opened almost 3 per cent higher on Friday but reversed course to swing down about 11 per cent after local media reported that energy officials in Inner Mongolia had raised local miners’ coal production capacity by 100m tonnes.

The CSI Coal index of listed Chinese miners fell as much as 5.5 per cent.

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