"The labor cost number was higher than expected, which is giving people the belief that wages are going up," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Benchmark 10-year notes fell 13/32 in price to yield 2.36 percent, their highest since April 10, and up from 2.31 percent late on Wednesday. Bonds held onto price losses after the US House of Representatives narrowly approved legislation to repeal major portions of Obamacare and replace it with a Republican healthcare plan, handing a major legislative victory to President Donald Trump.
Passing healthcare reform has boosted investor expectations that the Trump administration will also be able to pass fiscal stimulus aimed at bolstering economic growth. "It all falls into the story that the Fed is going to continue to raise rates, that growth is going to pick up with fiscal reform and therefore interest rates have to go higher," said Comiskey. Expectations of a rate hike in June increased after the Fed on Wednesday downplayed weak first-quarter economic growth as transitory and emphasized solid inflation and the strength of the labour market.
Futures traders are pricing in a 79 percent chance of a June rate hike, up from 71 percent before the Fed statement, according to the CME Group's FedWatch Tool. The next major US economic data release will be Friday's payrolls report for April. Employers are expected to have added 185,000 jobs in the month, according to the median estimate of 101 economists polled by Reuters. Numerous Fed officials including Fed Chair Janet Yellen and Vice Chair Stanley Fischer are also due to speak on Friday. Investors are also preparing for the Treasury Department to sell $62 billion in coupon debt next week, including $24 billion in 3-year notes, $23 billion in 10-year notes and $15 billion in 30-year bonds.
Copyright Reuters, 2017