Treasury yields rise after US jobs report misses expectations

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The U.S. economy beat previous expectations of creating 256,000 jobs in December, sending yields on U.S. government debt higher as traders and banks cut their expectations for a Federal rate cut. Reserve.

The number from the Bureau of Labor Statistics on Friday exceeded the consensus forecast from economists polled by Reuters of 160,000 and was above the revised level of 212,000 added in November.

Treasury yields rose as investors bet Feed it will be slow to cut capital gain this year. Futures markets have pushed back the expected first-quarter rate cut to September from June ahead of the data release. The chances of a second recession this year have dropped to about 20 percent from about 60 percent.

Bank of America continued on Friday, saying that the “gang” jobs report suggested that “the period of tapering is over”.

The Wall Street bank added “the conversation should move to the upside, which is possible” if inflation rises significantly. Goldman Sachs on Friday also cut its 2025 forecasts from a three point reduction to two.

It is strong job figures sent US government bond yields soaring. The 10-year yield rose 0.08 percent to 4.76 percent – the highest level since November 2023. The two-year yield neutral rose to 0.12 percent at of 4.38 percent.

Wall Street stocks fell, with the broader S&P 500 closing up 1.5 percent and the tech-heavy Nasdaq Composite losing 1.6 percent. The S&P 500 fell to its lowest level since the November 5 US election.

Eric Winograd, chief economist at AllianceBernstein, said: “The (December jobs) number underscores that the Fed does not need to rush . . . it pretty much confirms that they have to wait a few months.”

The bond market was already “aggressive”, he added.

On Friday activities The data was strongly anticipated on both sides of the Atlantic during a sell-off in government bond markets, fueled by growing expectations that the Fed will cut interest rates slightly in 2025.

UK Chancellor Rachel Reeves is on the rise pressure this week after the government’s borrowing costs rose, leaving him unable to meet his budget targets.

UK bond yields rose after the release of US jobs figures. The 10-year yield rose to 4.85 percent, up 0.02 percent on the day, but below the 16-year high of 4.93 percent earlier this week.

US president-elect Donald Trump’s plans to cut taxes, raise tariffs and restrict immigration have also prompted the Fed to signal that it will be more cautious in 2025.

The central bank in December predicted two quarters of rate cuts this year, compared to an estimate of four in September, partly due to persistent strength in the labor market.

Jeff Schmid, a senior Fed official, on Thursday said the US central bank is “very close” to meeting its targets on inflation and employment, underscoring expectations that policymakers will refrain from cutting interest rates this year.

The Fed began cutting its interest rate in September, cutting it by a full 1% until the end of 2024.

At its next meeting later this month, the central bank is widely expected to keep interest rates steady in its target range of between 4.25 and 4.5 percent.

Tom Porcelli, chief US economist at PGIM Fixed Income, said: “I think the Fed is feeling pretty good right now about going through the next meeting – and obviously, if this kind of strength is persevere, they will pass the next few meetings.”

Friday’s figures showed the unemployment rate was 4.1 percent, compared with 4.2 percent in November. They marked the last monthly jobs numbers released under the presidency of Joe Biden, where the American economy created 16.6 million jobs.

A strong labor market that defied frequent predictions that a deep recession or recession was looming was a defining feature of the economy under Biden’s watch.

But politically it did not help the Biden administration because those benefits were reduced by the increase in inflation that rose in the summer of 2022, which raised the cost of living for families throughout his administration.