By Sam Goldfarb 

Yields on U.S. government bonds held gains Friday after new data showed a big jump in employment in February, further fueling investors' bets on a strong economic rebound that could lead the Federal Reserve to raise interest rates sooner than previously expected.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 1.575%, according to Tradeweb. That was down from 1.626% right after the report but still up from 1.547% Thursday.

Yields, which rise when bond prices fall, have been surging for weeks based largely on investors' hopes for the near future, when vaccines may have tamed the coronavirus pandemic even as the government continues to pump money into the economy with various stimulus programs.

Some solid economic data, though, has also helped -- the latest coming Friday when the Labor Department said that the economy added 379,000 jobs in February, much more than economists had anticipated.

Friday's move also comes a day after Federal Reserve Chairman Jerome Powell made his own contribution to the selling in the bond market.

Appearing at The Wall Street Journal Jobs Summit, Mr. Powell said the recent increase in Treasury yields had caught his attention and suggested the Fed might intervene if overall financial conditions tighten much further. But he didn't signal that the Fed was anywhere close to buying more long-term Treasurys each month in an effort to contain yields, as some investors had thought was possible.

He also said that the central bank will maintain ultralow interest rates until its employment and inflation goals have been met and that it is highly unlikely that the Fed's goal of maximum employment will be reached this year.

Despite the sharp increase in Treasury yields, many analysts say the Fed isn't likely to intervene in the market unless there is more severe selling in riskier assets, such as stocks and corporate bonds. Those play critical roles in determining the cost of raising money for businesses and influencing sentiment.

As it stands, companies can still borrow at very low interest rates, putting less pressure on the Fed to act and providing more room for Treasury yields to rise.

Some analysts say there are important factors beyond the economic outlook that are driving yields higher. One is the sheer volume of new Treasurys that enter the market each month as the government funds its efforts to fight the pandemic.

Another is uncertainty over whether the Fed will extend an exemption allowing banks to hold less capital compared with the size of their balance sheets, which is set to expire at the end of the month.

The exemption enables large banks to exclude their holdings of Treasurys and central bank reserves when working out how much capital they need to meet a standard known as the supplementary leverage ratio. The banks will need more capital to hit the same ratio levels if the exemption is allowed to expire, and analysts say they might do that by selling Treasurys.

Paul J. Davies contributed to this article.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

March 05, 2021 10:55 ET (15:55 GMT)

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