Investors aggressively sold off U.S. government debt on Friday after a stronger-than-expected job report for November, sending the policy-sensitive 2-year yield up by the most in five months.
What happened
- The yield on the 2-year Treasury BX:TMUBMUSD02Y jumped 14.7 basis points to a more-than-one-week high of 4.725%, from 4.578% on Thursday. That’s the largest one-day increase since June. For the week, the 2-year rate rose 16 basis points, according to figures from Dow Jones Market Data.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 11.5 basis points to 4.244%, from 4.129% Thursday afternoon. The rate ended the week up by 1.9 basis points.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y climbed 8.1 basis points to 4.325%, from 4.244% late Thursday. For the week, the rate finished down by 9.2 basis points.
- Friday’s moves were the largest one-day jumps for the 10-year and 30-year rates, respectively, since Oct. 17 and Nov. 9.
What drove markets
Data released on Friday showed that the U.S. added a higher-than-expected 199,000 jobs in November, above the 190,000 estimate of economists polled by the Wall Street Journal. The solid job gain was accompanied by a drop in the unemployment rate, to 3.7% from 3.9%.
See also: Solid job growth, sharp wage gains sends Treasury yields up by the most in months
The data prompted fed-funds futures traders to dial back on their expectations for a rate cut by the Federal Reserve early next year. They now see a 45.6% chance of at least a 25-basis-point cut by March, down from 64.5% a day ago, according to the CME FedWatch tool. This is after factoring in a more than 90% likelihood of no action next Wednesday or by January, which would keep the fed-funds rate target between 5.25% and 5.5%.
In other data released on Friday, the University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 69.4, from a six-month low of 61.3 in the prior month.
Next week brings a $ 37 billion 10-year auction and $ 13 billion sale of 20-year bonds, along with November’s consumer-price index report and the Federal Open Market Committee’s policy decision.
What analysts are saying
“The employment market continues to support the idea of positive economic growth as we move into 2024,” said Steve Wyett, the Oklahoma-based chief investment strategist at BOK Financial. Friday’s job report indicates “U.S. consumers are still supported by a healthy job market,” he said.
“We think this adds to the idea of the Fed being slower to cut rates than current market pricing would indicate,” Wyett wrote in an email. “Overall, this is a good number for the economy … and the Fed.”