Bond Report: Treasury yields bounce, led by 2-year fee, after November jobs report

U.S. bond yields jumped on Friday, led by the policy-sensitive 2-year rate, after a hotter-than-expected U.S. jobs report for November prompted traders to push up the likelihood of a 5% or higher fed-funds rate by March.

What’s happening

The yield on the 2-year Treasury
rose to 4.367% from 4.254% on Thursday.

The yield on the 10-year Treasury
jumped to 3.595% from 3.525% as of late Thursday.

The yield on the 30-year Treasury
advanced to 3.662% from 3.633%.

What’s driving markets

Two-year yields jumped sharply on Friday after November’s nonfarm payroll report showed the U.S. added 263,000 jobs, exceeding the 200,000 new jobs that economists had expected. The unemployment rate was unchanged at 3.7%, while average hourly wages rose 0.6% to $32.82 an hour. Job gains for the prior two months were revised higher.

Fed-funds traders boosted the likelihood that the Fed’s main policy rate target goes to 5% or higher by March, up from a current level between 3.75% and 4%. Those chances rose to 43%, from almost 31% on Thursday.

What analysts are saying

“Nonfarm payrolls at 263,000 came in ahead of expectations, with the gains further underlined by upward revisions in the prior two months,” said Jason Pride, chief investment officer of private wealth at Glenmede. In other words, the report was “hotter than expected.”

“While the Fed may slow down its rate increases from the 0.75% per meeting pace to 0.50% per meeting pace, it may also place pressure on them to extend those rate increases further into 2023,” Pride said. “Such a path to higher rates for longer should put a damper on both fixed income and equity markets.”

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