Updated at 0915 EDT
By Karen Brettell
June 7 (Reuters) –U.S. Treasury yields jumped on Friday after data showed that U.S. job growth accelerated far more than expected in May, leading traders to pare back expectations that the Federal Reserve could begin cutting rates as soon as September.
Nonfarm payrolls increased by 272,000 jobs last month, above economists’ expectations for 185,000 job gains.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate ticked up to 4.0% from 3.9% in April.
“There’s no urgency for the Fed to cut if the labor market is firm,” said Padhraic Garvey, regional head of research, Americas at ING in New York. “This is the most important employment print that we get. We just had it, it’s bang up to date, and it’s pretty strong.”
Bonds had rallied heading into Friday’s data as traders bet that the report would reflect a cooling labor market.
Personal consumption expenditures (PCE) data last Friday showed that core inflation eased in April , boosting expectations that the Fed will ease policy this year as the economy slows and inflation moderates. Some softer jobs releases this week added to that view.
“There was definitely the build of a rate cut optimism play since the core PCE number,” said Garvey. Now, “I don’t see the justification for going much more to the downside” in yields, he said.
Benchmark 10-year note yields US10YT=RR were last up 14 basis points on the day at 4.416%.They got as low as 4.275% on Wednesday, the lowest since April 1.
Two-year note yields US2YT=RR gained 13 basis points to 4.853%,after dropping to 4.716% on Thursday, the lowest since May 16.
The inversion in the two-year, 10-year Treasury yield curve US2US10=TWEB was little changed on the day at minus 44 basis points.
Reporting By Karen Brettell; Editing by Chizu Nomiyama and Toby Chopra