Long-dated US government debt rallied on Friday and travel stocks jumped following better than expected jobs data and encouraging results from Pfizer for its antiviral Covid-19 pill.
The yield on the benchmark 10-year Treasury note dropped 0.07 percentage points to 1.46 per cent, pointing to a rise in prices for the second day in a row. Short-term bonds traded in a tighter range, with the two-year yield down only 0.03 percentage points to 0.40 per cent.
The moves in fixed-income markets came after a report showed employers in the world’s largest economy added 531,000 jobs in October, beating the forecast of Wall Street economists of 450,000 hires.
There were “notable job gains” in the pandemic-sensitive leisure and hospitality sectors, the US Bureau of Labor Statistics said, while the number of people who said they were not looking for work because of Covid-19 declined on the prior month.
Moves in US Treasuries rippled into other big markets, with the UK 10-year gilt yield dropping 0.09 percentage points to 0.84 per cent on Friday after the Bank of England surprised traders a day earlier by holding interest rates at a record low level.
Some analysts are concerned the strong global recovery from the pandemic, which has contributed to a powerful burst of inflation, will force central banks to tighten monetary policy more quickly than they had anticipated. If policymakers move too forcefully or too quickly, some investors worry, it could knock future economic growth.
The spectre of a weaker economy several years in the future has helped to keep a lid on longer-term bond yields, narrowing the difference between those and yields on bonds with shorter maturities.
“The Fed doesn’t have the best track record of engineering a soft-landing even in the most pedestrian of macroeconomic environments,” said Ian Lyngen, head of US rates strategy at BMO. “To say that coronavirus has complicated the process of setting monetary policy would be an understatement of pandemic proportions.”
The US central bank this week announced plans to reduce its $120bn monthly bond purchases that have lowered borrowing costs and boosted stock markets since March 2020, but said it would be “patient” in terms of raising interest rates from record lows.
Analysts are mixed on how quickly the Fed will begin raising interest rates. “A few more quarters of these equivalent strong gains [in the jobs market] will surely tip the Fed to become more focused on the rate side of the equation, but that is still a story for the middle of next year,” said Charles Hepworth, investment director at GAM Investments.
“We do not think the Fed will start hiking until 2023,” added Hani Redha, managing director at PineBridge Investments. “We’re still a way away from tighter monetary conditions.”
In equity markets, the blue-chip S&P 500 index was 0.4 per cent higher in afternoon trade, remaining on track for its best weekly performance since July.
The technology-focused Nasdaq Composite erased gains from earlier in the day, trading up 0.2 per cent.
Shares in holiday booking website Expedia gained 15 per cent, while cruise businesses Royal Caribbean and Carnival each rose over 8 per cent after it emerged that pharma giant Pfizer’s oral antiviral drug for the treatment of coronavirus cut the risk of hospitalisation or death by 89 per cent in a late-stage study.
Expedia also delivered third-quarter numbers ahead of expectations after the bell on Thursday, with gross bookings of $18.7bn — up from $8.6bn a year earlier. It also swung to a net profit of $376m, up from losses of $192m.
Meanwhile, pandemic bull Peloton tumbled by more than 34 per cent on Friday after slashing its annual revenue forecast by nearly $1bn amid supply chain issues and the reopening of gyms and in-person fitness classes. Zoom fell by 7.5 per cent.
Other market moves
In Asia, Tokyo’s Topix share index fell 0.7 per cent. Hong Kong’s Hang Seng index lost 1.4 per cent after Chinese property developer Kaisa Group said it had missed an interest payment on a wealth management product.
Brent crude, the oil benchmark, rose 2.8 per cent to $82.78 a barrel, supported by producer group Opec+ on Thursday sticking with a plan for gradual output increases.
The dollar index, which measures the US currency against six others, was flat after the non-farm payrolls report.