In January, the US labour market burned red-hot as hiring surged unpredictably and unemployment dropped to a 53-year low, defying predictions of a recession and increasing pressure on the Federal Reserve to continue raising interest rates.
US equity futures are trading lower after the release of latest job report.
An upwardly revised 260,000 gain in December was followed by a gain of 517,000 nonfarm payrolls in January, according to a Labor Department report released on Friday. The unemployment rate dropped to 3.4%, the lowest since May 1969 and average hourly earnings grew at steady clip.
In the US, there were 517,000 more jobs added than expected in the previous month (188,000). Over the last year, wage growth slowed to a 4.4% pace, and the jobless rate decreased more than expected to 3.4%.
After data revealed a massive increase in US employment in January while pay growth remained subdued, Treasuries experienced a significant sell-off, with front-end rates spiking by 15 basis points.
The most recent jobs report dampened positive bond market confidence that worse economic conditions in the upcoming months will prevent the Fed from implementing the additional rate rises that policymakers currently expect.
After dropping to 3.33% on Thursday, the 10-year yield increased by about 12 basis points to 3.51% and barely changed week over week.
It will now be interesting to see how Fed Chair Jerome Powell responds to the bond market, which is still pricing in rate reduction for later this year even if benchmark Treasury yields are still trading below the current policy band of 4.5% to 4.75%, when he talks next week.
The labour market’s ability to hold up will determine the Fed’s decision-making going forward, Powell said, and if it does, they won’t lower rates, which will increase market volatility.