US Treasury Yields Surge On Wage Growth

The US 10-year note’s yield extended its climb, reaching the highest level in nearly two years, after December employment data showing strong wage growth fanned inflationary concerns and solidified March as the likely starting point for the first rate hike by the Federal Reserve.

While the 199,000 new jobs fell short of the expected 450,000 jump, wages for the past 12 months expanded at 4.7%, eclipsing an expected pace of 4.2%. The unemployment rate declined to 3.9%, below the forecast of 4.1%.

December’s nonfarm payrolls grew by 199,000, while economists were expecting the economy to have added 422,000 jobs in December, according to estimates compiled by Dow Jones.

While the overall jobs figure was disappointing, the unemployment rate dropped to 3.9%, according to Bureau of Labor Statistics data. The unemployment rate was forecast to come in at 4.1%. Average hourly earnings increased by 0.6%, above expectations.

This report says it is a tight labor market. Employers can’t find workers. The unemployment rate went down. Overall headline payroll growth is mediocre but it feels like more of an ongoing labor supply issue. Treasury yields have been climbing all week, pressuring the equity market, specifically the technology sector.

The 10-year yield topped 1.75% on Thursday, as investors digested the Federal Reserve’s latest meeting minutes, in which officials indicated that the central bank was ready to more aggressively pull back its policy support of the economy. The 10-year Treasury sat around 1.5% at the end of 2021.

On Thursday, St. Louis Fed President James Bullard said that the Fed could hike interest rates as soon as March.

In addition, San Francisco Fed President Mary Daly said that the central bank needs to hike the interest rate in order to keep the economy in balance. However, Daly added that the Fed should reduce its balance sheet only after raising rates and there are no auctions scheduled to be held on Friday.