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A September nonfarm payrolls report that exceeded expectations triggered a fresh round of selling in the Treasury market on Friday, sending the 30-year yield further into a 16-year high and resulting in its biggest weekly advance of the year.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 5.4 basis points to 5.077% from 5.023% on Thursday, after touching an intraday high of 5.21% on Friday. The 2-year yield rose 3.1 basis points this week and it is up 17 of the past 22 weeks. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
jumped 6.8 basis points to 4.783% from 4.715% Thursday afternoon. It rose 21.1 basis points this week, the largest weekly rise since the period that ended July 7. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
climbed 5.5 basis points to 4.941% from 4.886% late Thursday. Friday’s level is the highest since Sept. 20, 2007. The 30-year yield rose 23.2 basis points this week for the largest weekly rise of the year.
What drove markets
Data released on Friday showed that the U.S. labor market is still hot. The U.S. created 336,000 new jobs in September, exceeding economists’ expectations for a 170,000 rise. The unemployment rate was unchanged at 3.8% in what is the last jobs report before the Federal Reserve’s next interest-rate decision on Nov. 1.
It was the second piece of data on the labor market to trigger aggressive selling in the Treasury market. On Tuesday, a report showed U.S. job openings rose to 9.6 million in August, sending the 10- and 30-year rates to their highest closing levels since Aug. 8, 2007, and Sept. 20, 2007, respectively.
See also: Why 5% bond yields could wreak havoc on the market
Treasury yields climbed as fed funds futures traders priced in a 26.6% chance of a 25-basis-point Fed rate hike in November, which would push the central bank’s main interest rate target up to between 5.5%-5.75%.
Meanwhile, real yields, as reflected by yields on Treasury inflation-protected securities, reached multiyear highs. The 30-year TIPS yield was at 2.547% as of 3 p.m. New York time, or the highest level since early December of 2008, according to Tradeweb. The 10-year TIPS yield was at 2.472% and the 5-year TIPS yield was at 2.609%, the highest levels since November 2008.
What analysts are saying
“The September jobs report was unequivocally strong, with hiring handily surpassing the upper bound of the consensus forecast range—and substantial upward revisions confirm additional residual strength. The magnitude of the upward surprise is sufficient to put a question mark on the long, steady deceleration in payrolls we have been focused on for much of this year,” according to the Markets 360 team of economists and strategists at BNP Paribas.
