U.S. nonfarm payrolls for October came in surprisingly strong, driving Treasury prices lower and yields higher across the board on Friday, as investors ramped up bets that the Federal Reserve will raise interest rates again in December.
The report showed U.S. employers added 165,000 jobs last month, far above the 65,000 expected by the market, with the actual gain roughly 2.5 times the consensus estimate.
The unemployment rate fell to 4.1%, and payroll figures from prior months were revised upward, further underscoring the resilience of the U.S. labor market.
On wages, average hourly earnings rose 3.1% over the past 12 months, indicating that hiring demand remains firm and pay growth has picked up.
Following the strong jobs data, U.S. government debt sold off, pushing yields higher across maturities.
The two-year Treasury yield, which is most sensitive to the Fed's policy outlook, rose as much as 7 basis points to 4.54%, while the benchmark 10-year Treasury yield climbed 4 basis points to 4.87%.
Because bond prices move inversely to yields, the rise in yields reflected investors recalibrating their expectations for the future path of interest rates.
After the payrolls release, the market continued to bet that the Fed will tighten policy further. Interest rate market pricing showed traders now see about a 70% probability of a 25 basis point hike at the Fed's December policy meeting.
At the same time, the market expects the Fed to raise rates by at least another 40 basis points in total through September 2027.
The nonfarm payrolls report reinforced the view that the U.S. economy remains resilient. Job growth significantly beating expectations, a falling unemployment rate and a pickup in wage growth suggest the labor market has yet to show clear signs of weakness, and could keep the Fed vigilant about controlling inflation.
For the Fed, strong employment growth supports economic expansion, but it may also sustain household consumption and make inflation pressures slower to fade. With higher energy prices already weighing on inflation, a persistently strong labor market could give policymakers another reason to maintain a restrictive stance.
The Treasury market reaction also showed investors are pricing in higher policy rate expectations. Short-term yields rose more than long-term yields, highlighting how sensitive the market is to near-term Fed policy shifts.
Looking ahead, investors will keep watching U.S. inflation data and comments from Fed officials to judge whether December rate hike expectations will intensify further and how long this monetary tightening cycle may last.
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