Treasury Yields Rise Amid Stronger-Than-Expected Jobs Data
U.S. Treasury yields surged on Friday after the government reported a significantly stronger-than-expected February jobs figure, pushing back market expectations for when the Federal Reserve might begin cutting interest rates.
The economy added 275,000 nonfarm payroll jobs last month, well above the 200,000 that economists had forecast. The unemployment rate edged up to 3.9% from 3.7%, partly reflecting more people entering the labor force.
Yields Jump, Rate-Cut Bets Fade
The benchmark 10-year Treasury yield climbed 12 basis points to 4.72%, its highest level in six weeks, as traders rapidly repriced their bets on the Fed's rate path. Fed funds futures now imply the first rate cut won't arrive until September.
A basis point is one-hundredth of a percentage point. The 12-basis-point move in the 10-year yield was its largest single-day jump in more than a month.
The 2-year Treasury yield rose even more sharply — climbing 15 basis points to 4.89%. The spread between 2-year and 10-year yields narrowed slightly, continuing a slow normalization after an extended period of inversion.
“This report is a reminder that the labor market remains resilient, and the Fed has no urgency to cut. The bond market is just catching up to what the data has been telling us for months.”
Why Jobs Data Moves Bond Prices
It can seem counterintuitive that good economic news — more people working — pushes bond yields up, which means bond prices fall. The connection runs through the Federal Reserve's policy path. A resilient labor market gives the Fed more room to keep interest rates elevated for longer without risking a spike in unemployment, since strong job growth reduces the urgency to stimulate the economy with rate cuts. Bond investors, anticipating that rates will stay higher for longer, demand a higher yield to hold longer-dated bonds today, which mechanically pushes prices down (yields and prices move inversely for a fixed-coupon bond).
This dynamic matters well beyond the bond market itself. The 10-year Treasury yield serves as a benchmark for a huge range of borrowing costs across the economy, including mortgage rates, corporate bond yields, and even the discount rate analysts use to value stocks. A sharp move higher in the 10-year, as seen here, tends to ripple into higher mortgage rates within days and can pressure equity valuations — particularly for growth stocks whose value depends heavily on future earnings that are worth less today when discounted at a higher rate.