Yields rise following strong jobs report, 10-year moves past 4%
Adds analyst quote, adds FedWatch data, adds details of jobs report
By David Randall
NEW YORK, Jan 5 (Reuters) -U.S. Treasury yields popped higher Friday, extending a week long sell-off, after the closely watched nonfarm payrolls report showed continuing strength in the labor market.
Jobs have become a focus for markets as investors look to anticipate the timing of the first interest rate cut by the Federal Reserve. Persistent strength in the labor market threatens to accelerate inflation, forcing the Fed to maintain or raise rates after its most aggressive rate-hiking cycle since the early 1980s.
Futures markets are pricing in a 44% chance that the Fed keeps benchmark rates at their current range of 5.25% to 5.5% at its March meeting, up from 11.5% a week ago, according to CME's FedWatch Tool. Markets are pricing in a 53% chance of a 25 basis point rate cut.
Overall, markets see the Fed cutting rates by a total of 132 basis points by the end of the year, down from expectations of more than 160 basis points in cuts two weeks ago.
"Markets are starting a new year and comparing their expectations with the Fed and with the data and saying there's a disconnect here," said Chris Gunster, head of fixed income at Fidelis Capital. "Now you're starting to see yields back up and we think we're going to see more of that as the year moves on."
The yield on 10-year Treasury notes US10YT=RR was up 6.6 basis points at 4.057%. It had been up approximately 4 basis points before the jobs report was released, and is up approximately 20 basis points from its level at the end of December.
Nonfarm payrolls increased by 216,000 jobs last month, the Labor Department's Bureau of Labor Statistics said Friday. Economists polled by Reuters had forecast payrolls increasing by 170,000 jobs.
The unemployment rate was unchanged at 3.7%, while wage inflation remained firm.
The yield on the 30-year Treasury bond US30YT=RR was up 6.4 basis points at 4.200%.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 5.3 basis points at 4.435%.
January 5 Friday 9:13AM New York / 1413 GMT
Price | Current Yield % | Net Change (bps) | |
Three-month bills US3MT=RR | 5.2425 | 5.3983 | 0.003 |
Six-month bills US6MT=RR | 5.0675 | 5.2851 | 0.011 |
Two-year note US2YT=RR | 99-167/256 | 4.435 | 0.053 |
Three-year note US3YT=RR | 100-114/256 | 4.2111 | 0.062 |
Five-year note US5YT=RR | 98-180/256 | 4.04 | 0.067 |
Seven-year note US7YT=RR | 98-32/256 | 4.0611 | 0.065 |
10-year note US10YT=RR | 103-144/256 | 4.0571 | 0.066 |
20-year bond US20YT=RR | 105-32/256 | 4.3611 | 0.066 |
30-year bond US30YT=RR | 109-76/256 | 4.2004 | 0.065 |
Reporting by David Randall; Editing by Susan Fenton and Barbara Lewis
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