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Government Bond Yields Rise After Jobs Report

Yields on U.S. Treasury yields rose sharply Friday morning after the jobs report suggested the economy might not be cooling as fast as investors had assumed.

The yield on the benchmark 10-year U.S. Treasury note was 2.801%, according to Tradeweb, up from 2.674% Thursday. This is still below its 2022 peak near 3.5% set in June. The yield on the two-year Treasury spiked to 3.207% from 3.035% Thursday.

The U.S. labor market added 528,000 jobs in July, more than double what Dow Jones estimated (258,000 more jobs). Unemployment also dropped to 3.5%, below the 3.6% estimate. Wage growth also went up 0.5% for the month and 5.2% higher than a year ago.

With its plan to raise rates to tame surging inflation, the Fed is expecting job growth to slow. But that’s clearly not the case if this jobs report is anything to go by. The report will be one of two the U.S. central bank will see before deciding how much to raise rates at its September meeting.

Municipal bonds are issued by federal, state, and local governments and agencies to pay for everything from road projects to school buildings. They’re typically considered a relatively safe investment since the issuer can impose taxes to repay the debt, though defaults are not unheard of.

Munis are generally exempt from federal taxes and, in some instances, may be exempt from state and/or local taxes. This makes munis especially appealing to investors in high tax brackets.

Investors looking to take advantage of higher yields on government bonds may want to consider adding the American Century Diversified Municipal Bond ETF (TAXF) to their fixed income portfolios. Per FactSet’s analyst report, TAXF is an actively managed bond ETF that mixes investment-grade and high-yield municipal bonds to boost income while reducing taxes.

TAXF allocates up to 35% of its portfolio to riskier municipal securities, depending on market conditions. The fund is competitively priced compared with rivals in actively managed municipal bonds, though investors should compare performance and portfolio credit quality against some of the cheaper index options available.

TAXF has an expense ratio of 0.29%.

For more news, information, and strategy, visit the Core Strategies Channel.

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