Treasury yields spiked on Friday morning following a much stronger than expected January jobs report.
Treasury note’s yield was at 3.53%, up sharply from its closing level Thursday of 3.396%. The two-year Treasury note saw an even bigger surge in yields to 4.26% from 4.09%.
Nonfarm payrolls grew up 517,000 in January, blowing past the
consensus estimate of 185,000. The unemployment rate slid to 3.4% from 3.5% in December.
That news, while positive in the sense that it means more people were working, raised concern among investors that the Federal Reserve may have to do more in terms of raising interest rates as it fights rapidly rising prices. But there was favorable news regarding inflation.
Craig Fehr, head of investment strategy at Edward Jones, pointed out that even though the jobs number was very strong, wage growth slowed year over year to 4.4%.
“That brings about question of can the labor market remain exceptionally tight and quite healthy–and yet can we see inflation come down?,” he said.
Treasury yields have fallen sharply since October, a trend Fehr attributes to an expectation of slowing economic growth and the market anticipating the Fed “to inch closer to a point at which it can stop hiking rates.”
Friday’s jobs report is challenging that narrative, pushing yields higher.
Thursday’s stock market rally, with gains in tech stocks in particular, reflected optimism that the Fed is close to finishing its tightening. The jobs news sent the
down about 0.6% in early trading Friday.
Jack McIntyre, a portfolio manager at Brandywine Global, observed in an email that labor “is an extra lagging indicator this cycle so it will be the last variable to show accelerated weakness.”
McIntyre added that he doesn’t expect to Fed to “accelerate their pace of tightening due to this report.”
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