Bond yields jumped in pre-market trading Monday as investors reacted to a stronger-than-expected September jobs report. The yield on the 10-year Treasury climbed above 4.0%, reflecting renewed concerns about inflation and the pace of economic cooling.
- This latest spike comes after the U.S. economy added 257,000 jobs in September, far outpacing expectations and signaling that the labor market remains resilient.
Wage growth also edged up slightly, further complicating the narrative that inflation has been tamed. The solid job gains and wage increases suggest that the Federal Reserve may need to keep a closer eye on inflationary pressures, even as they continue efforts to cool the economy.
Three-Week Turnaround: The 10-year Treasury yield had fallen below 4.0% in early August and reached its recent low on September 16th, dipping below 3.62% during intraday trading. However, since the Federal Reserve announced a 50 basis point cut, bond markets have experienced a sharp sell-off, pushing yields up by nearly 40 basis points in just three weeks.
- Last week, the debate was between a 50 or 25 basis point cut at the November meeting a not cut was zero percent. However, the CME Fed Watch tool now has 10% of traders pricing in no cut in November with 90% still banking on a 25 bps cut. A 50 bps cut is no longer on the table.
Looking Ahead: Investors are now looking ahead to Thursday’s Consumer Price Index (CPI) report for further clues about the inflation outlook. A cooler-than-expected CPI reading could ease fears and slow the sell-off in bonds, while a hotter number could intensify concerns about rising inflation, sending yields even higher and significantly impacting a rate cut at the November Fed meeting.
With volatility in the bond market intensifying, the focus remains on inflation indicators and Federal Reserve policy, as the central bank continues to weigh its next steps in the ongoing battle against inflation.
