Treasury yields jumped sharply Friday after a much stronger than expected U.S. July jobs report stoked expectations the Federal Reserve will continue aggressively raising interest rates to contain inflation.
What yields are doing
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
3.205%
rose to 3.16%, up from 3.035% at 3 p.m. Eastern on Thursday. -
The 10-year Treasury note
TMUBMUSD10Y,
2.818%
yielded 2.777%, compared with 2.674% Thursday afternoon. -
The 30 year Treasury bond yield
TMUBMUSD30Y,
3.060%
was 3.02% versus 2.959% late Thursday.
What’s driving the market
The U.S. economy added 528,000 new jobs in July and the unemployment rate fell to pre-pandemic levels, though the robust report could add to inflation worries and push interest rates even higher. Economists polled by The Wall Street Journal had forecast 258,000 new jobs.
The unemployment rate slipped to 3.5% from 3.6%, the government said Friday, matching the lowest rate since the late 1960s, while average hourly earnings rose 0.5%.
Fed-funds futures traders priced in a 67.5% probability of a 75 basis point rate increase in September, up from 34% on Thursday.
Meanwhile, geopolitical tensions remain an undercurrent for markets. China conducted “precision missile strikes” Thursday in waters off Taiwan’s coasts as part of military exercises that have raised tensions in the region to their highest level in decades following a visit by U.S. House Speaker Nancy Pelosi to the island.
Five of the missiles fired by China landed in Japan’s Exclusive Economic Zone off Hateruma, an island far south of Japan’s main islands, Japanese Defense Minister Nobuo Kishi said. He said Japan protested the missile landings to China as “serious threats to Japan’s national security and the safety of the Japanese people.”
What analysts say
“Overall, a solid number consistent with the Fed’s hawkish ambitions. If the FOMC meeting was tomorrow — this would make a 75 bp hike the path of least resistance. Alas, there is still a lot of data between now and the September 21st meeting,” wrote Ian Lyngen and Benjamin Jeffery, strategists at BMO Capital Markets.
“In the run up to the data, the market was already under modest pressure and since the release the move has been extended. 2s/10s inverted as far as -43 basis points — putting the -55 basis point level on the radar of relevance,” they wrote.
The Associated Press contributed to this report.
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