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Treasury yields surge by most in at least six months after unexpectedly strong January payrolls data

Treasurys sold off aggressively after Friday’s unexpectedly strong January jobs report, pushing the benchmark 10-year yield up by the most since July.

What’s happening

  • The yield on the 2-year Treasury
    jumped 15.1 basis points to 4.345% from 4.194% on Thursday. At one point, it was headed for its biggest one-day gain since May 5 of last year. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    surged 13.2 basis points to 3.994% from 3.862% on Thursday, after intermittently surpassing 4% in New York morning trading. The rate remained on track for its largest one-day gain since July 27.

  • The yield on the 30-year Treasury
    was 4.208%, up 10.6 basis points from 4.102% on Thursday.

What’s driving markets

In data released on Friday, the U.S. added a surprising 353,000 new jobs for last month, easily beating economists’ median expectation for a 185,000 gain. The unemployment rate stayed at 3.7% and hourly wages rose a sharp 0.6%, the biggest increase in almost two years.

After the report, traders largely took the likelihood of a quarter-point Fed rate cut in March off the table, and stuck by a 71% chance of one by May. Fed funds futures traders also continued to mostly see a likelihood of six rate cuts by December, according to the CME FedWatch Tool.

What analysts are saying

“The jobs report was stronger than expected in all the ways that count,” said Chris Low, chief economist at FHN Financial. “In January, there were far more jobs created, much faster wage growth, and a lower unemployment rate than expected. The wage gain might be a weather-related fluke.” However, “the job gain is harder to explain away.”

The report “is not going to encourage” the Fed “to rush into rate cutting,” Low wrote in a report.

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