2023.12.0819:37:00UTC+00Treasuries Move Sharply Lower Following Stronger Than Expected Jobs Data

Following the lackluster performance seen in the previous session, treasuries moved sharply lower during trading on Friday.

Bond prices regained ground after an early sell-off but moved back to the downside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 11.6 basis points to 4.245 percent.

With the sharp increase, the ten-year yield added to the slight uptick seen on Thursday, climbing further off the three-month closing low set on Wednesday.

The steep drop by treasuries came after the Labor Department released stronger than expected jobs data, partly offsetting recent optimism about the outlook for interest rates.

The closely watched report said non-farm payroll employment jumped by 199,000 jobs in November after rising by 150,000 jobs in October. Economists had expected employment to climb by 180,000 jobs.

The Labor Department also said the unemployment rate dipped to 3.7 percent in November from 3.9 percent in October. The unemployment rate was expected to remain unchanged.

The report raised concerns strength in the labor market could lead the Federal Reserve to postpone cutting interest rates, with investors hoping the central bank would pivot to rate cuts as early as March 2024.

"Despite the setback, markets are still pricing in a rate cut by May and four in total next year so it isn't that much of a setback," said Craig Erlam OANDA Senior Market Analyst, UK & EMEA.

He added, "The jobs report just wasn't ideal and didn't really fit the narrative that had been building in the markets, some would say too much."

Meanwhile, bond traders largely shrugged off a separate report from the University of Michigan showing a pullback consumers' inflation expectations.

The report said year-ahead inflation expectations plunged to 3.1 percent in December from 4.5 percent in November, falling to their lowest level since March 2021.

Long-run inflation expectations also fell to 2.8 percent in December from 3.2 percent in November, matching the second lowest reading seen since July 2021.

With the Fed widely expected to leave interest rates unchanged following its monetary policy next week, traders are likely to focus more closely on the central bank's accompanying statement and projections.

Reports on consumer and producer price inflation are also likely to attract attention along with reports on retail sales and industrial production.