Long-term US Treasuries Take a Nosedive After Strong Jobs Data

The first week of July was marked by a 23-basis point (BPS) spike in the 10-year US treasury yield amid red-hot US job data. Private payrolls grew by 497,000 in June - well above the 267,000 seen in the previous month - topping economists’ expectations of 228,000 and pushing Fed rate hike bets.

The 10-year yield reached its highest level since March at 4.07%, with the longer end of the yield curve being hit particularly hard. Concurrently, the U.S. 2-Year Treasury yield, which is usually sensitive to Fed policy changes, rose from 4.90% to 4.95% after reaching an apex of 5.11% on Thursday, a level unseen since June 2007.

Overall, long-term government bond ETFs lost 3.42% week-over-week. As an illustration, ETFs such as the Vanguard Extended Duration Treasury ETF (EDV) and the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ) suffered a decline of 4.77% and 4.73% respectively. That said, the year-to-date performance of both funds remains in positive territory and, importantly, they continue to gather assets. The PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ), which has $934 million of assets under management, recorded net inflows of $39.5 million over the course of the week suggesting that investors are still drawn towards safer assets as the macroeconomic environment remains uncertain.