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Treasury Yields Rise After April Jobs Report As Wage Pressures Mount

Wages were already rising in the disappointing April jobs report, but a labor market shortage could add even further upside pressures in the months ahead.

U.S. Treasury bond yields retracted earlier declines Friday as investors dug into details of a disappointing April jobs report and found further signals of accelerating inflation. 

Weekly average hourly earnings were up 0.7% on the month, and 0.3% on the year, the Bureau for Labor statistics said, despite the addition of just 266,000 new workers into the world's biggest economy last month - a figure that missed Wall Street forecasts by the largest margin since 1998. The BLS also lowered its March jobs addition estimate to 770,000 from 916,000, while the headline unemployment rate rose for the first time in a year to 6.1%.

The numbers suggest wages will need to increase further -- potentially stoking inflation forecasts -- in order to attract new employees into the workforce as state economies re-open and vaccine rollouts accelerate. 

"Amid concerns of labor shortages, the data in today’s report isn’t wholly consistent with the idea that labor shortages have crimped the recovery," said Glassdoor senior Economist Daniel Zhao. "Labor shortages were most commonly reported in leisure & hospitality, but the industry also saw the strongest job growth in April."

"While it's possible that gains would've been even higher without these labor shortage challenges, it is unusual that they would show up in other industries more severely," he added.

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Benchmark 10-year note yields, which slumped to 1.485% -- the lowest since March 4 -- in the wake of the April jobs report, retraced most of those losses to trade at 1.561% by the start of stock market trading at 9:30 am Eastern time.

The so-called 5-year breakeven inflation rate, a closely-watched Wall Street metric, is up 14 basis points this week to a 2011 high of 2.695%, although the CME Group's FedWatch tool, meanwhile, suggests little more than a 7% chance of a rate hike this year, down from 15.4% just a week ago.

The Nasdaq Composite, meanwhile, the most most sensitive of the three major benchmarks to interest rate moves, eased from an expected gain of 205 point to an opening bell gain of just 75 points. 

The Bureau for Labor Statistics said 266,000 new jobs were created last month, with headline unemployment rate edging higher, to 6.1%. 

The April tally was far lower than the market forecast of 978,000 and suggests the gradual re-opening of non-essential business, as well as the accelerated vaccine rollout, isn't being played out in labor markets were prospective workers are potentially demanding higher wages.