US Treasury prices fall as October jobs report revives rate hike hopes

U.S. Treasury prices fell sharply across short-term maturities on November 6, as an October nonfarm payrolls report showed job growth beating market expectations by a wide margin and reviving expectations for Federal Reserve interest rate hikes. According to Yonhap Infomax, the 10-year Treasury yield rose 3.40 basis points to 4.870% by 10:17 a.m. Eastern Time, while the 2-year yield climbed 6.40 basis points to 4.534% and the 30-year yield increased 1.40 basis points to 5.264%.

October Employment Rebounds Past Forecasts

That figure significantly exceeded the consensus estimate reported by Yonhap Infomax and completely eclipsed the upwardly revised September gain of 60,000. YTN added that the prior two months of employment data were revised upward by a total of 8만4천명 jobs, bringing July up to 18만6천명 and September to 60,000.

Industry sectors showed uneven expansion during the month. Professional and business services led the gains by adding 70,000 jobs, followed by health care with 4만2천명, transportation and warehousing with 2만5천명, and manufacturing with 1만9천명. Meanwhile, construction employment fell by 3,000, marking the first decline in eight months after experiencing months of growth tied to data center construction booms, according to YTN.

Wages Rise While Unemployment Drops

Hourly earnings grew faster than anticipated alongside the job gains. Average hourly earnings rose 0.4% month-over-month and 3.1% year-over-year to $38.00 in October, beating consensus forecasts of 0.3% and 2.9% respectively, as noted by YTN. The unemployment rate ticked down to 4.1% from September’s 4.2%, falling below the 4.2% median prediction among surveyed experts.

Consumer sentiment also showed resilience.

Treasury Yield Spreads Narrow as Interest Rate Futures React

The immediate reaction in fixed-income markets reflected growing conviction in monetary policy tightening. The yield spread between the 10-year and 2-year Treasuries narrowed from 36.6 basis points to 33.6 basis points. While Yonhap Infomax reported a 3.40 basis point increase for the 10-year benchmark, YTN’s reporting from slightly earlier in the morning showed a smaller move of 2.7 basis points to 4.864%.

Interest rate futures reacted swiftly to the underlying strength in the labor market. The CME FedWatch Tool showed that the probability of a 25-basis-point rate hike at the Federal Reserve’s December meeting jumped to 76.8% in Yonhap Infomax’s reporting, up from 66.9% the previous day. YTN reported a similar probability climb to 74.8%, while Chicago Mercantile Exchange rate futures markets overall had previously factored in a December rate increase probability of 65%.

Florian Ielpo, head of macro at Lombard Odier Asset Management, told Yonhap Infomax that the employment report shows artificial intelligence does not drive the entire economy. He stated that the core takeaway is confirmation of the economic strength consistently emphasized by the Federal Reserve, which practically cements a December rate increase.

Market Context Prior to the Employment Release

The stronger-than-expected labor data hit markets already grappling with severe volatility in technology shares. Munhwan Ilbo reported that U.S. stock indices suffered steep declines driven by artificial intelligence-related equities on November 5, fueled by fears over potential regulatory crackdowns on data center construction. Commenting on the unusual volatility in the absence of major market news, Noel Smith, co-CIO at Kai Asset Management, remarked It is extremely rare for stock prices to fluctuate to this extent when there is no major news to move the market and added that traces of forced position liquidation can be felt.