By Amrith Ramkumar and Julia-Ambra Verlaine
U.S. government bond yields surged and gold prices tumbled after Friday's better-than-expected jobs report, the latest sign that investors are wagering on brighter days ahead for the world economy.
The heavy selling of gold and Treasurys -- which fall in price as yields rise -- marks a major reversal in financial markets. For months, investors had favored these haven investments as the coronavirus devastated the world economy and unemployment soared. Gold and Treasurys held gains even as stocks surged, a signal that many remained skeptical about the equity rally.
Analysts say that trend is shifting, with investors selling their safer assets and moving more money into stocks. As major indexes surged Friday, the yield on the benchmark 10-year U.S. Treasury note rose to 0.903%, according to Tradeweb, up from 0.818% a day earlier. The 10-year yield, which helps set borrowing costs on everything from auto loans to mortgage rates, has risen to its highest level since late March.
Front-month gold futures, meanwhile, slid 2.5% to $1,676.20 a troy ounce, recording their biggest weekly decline since mid-March and falling further below their 7 1/2 year high from earlier in the year.
"I'm seeing a big move toward risk," said George Gero, managing director at RBC Wealth Management. Global investors "don't want to be left behind in the rally," lifting stocks and hurting havens, he added.
Friday's swings came after May hiring data showed U.S. employers unexpectedly added jobs last month, a sign that the labor market is recovering from its shutdown earlier in the year caused by coronavirus lockdowns.
Unemployment soared in March and April, but many investors are now anticipating a swift economic recovery. They expect historic stimulus measures by the world's central banks and governments to aid the rebound in growth. The European Central Bank said Thursday it would scale up its bond-buying programs until June 2021, and investors expect the Federal Reserve to keep interest rates near zero. The Fed's next meeting is slated for next week.
In another sign traders expect an economic recovery, the average annual inflation rate investors expect over the next 10 years -- measured by the gap between the yields of 10-year U.S. government debt and Treasury inflation-protected securities of similar maturity -- rose 0.044 percentage point Friday to 1.268%, according to Tradeweb. The so-called breakeven rate had fallen to around 0.5% at one point in March.
Friday's jobs data caught many analysts off guard, with consensus expectations showing projections of 8 million jobs lost last month. Now, some analysts expect the rally in riskier areas of the market to continue.
"This release will certainly add momentum to the 'V-shaped recovery' theme witnessed in markets of late," said Adam Crisafulli, founder of market-intelligence firm Vital Knowledge.
The unemployment report took many investors -- who have been scrutinizing all sorts of numbers including credit card and trucking data to gauge the trajectory of the economy -- by surprise.
"There were no indications prior that the improvement was this rapid and intense," said Rick Rieder, chief investment officer of global fixed-income at BlackRock Inc. "I think markets are a bit overzealous today, and the employment numbers may have overstated the V-shape nature of the recovery."
Some are waiting for more information to assess whether the employment gains are sustainable and an accurate representation of what's happening in the economy. Robert Dishner, a portfolio manager at Neuberger Berman, said he will be on the lookout for data on the state level to see if hirings are broad-based or selective in states that have re-opened earlier.
"Looking below the superficial information though, this was a pretty strong number through and through," said Mr. Dishner.
--Sam Goldfarb contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Julia-Ambra Verlaine at Julia.Verlaine@wsj.com
