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The U.S. added 336,000 jobs in September, far more than expected, pushing bond yields to a new 16-year high and stoking investor fears that interest rates could remain high for longer.
Bureau of Labor Statistics data that significantly exceeded expectations for 170,000 new jobs reignited the bond sell-off that has gripped global markets over the past two weeks.
The U.S. government’s 10-year borrowing cost hit its highest level since 2007 with the release of 336,000, which was also well above August’s upwardly revised total of 227,000.
Bonds partially recovered after their initial selloff, but yields remained near their highest levels in more than a decade, reflecting market expectations that the Federal Reserve will keep interest rates high for an extended period.
Wylie Tollette, chief investment officer at Franklin Templeton Investment Solutions, said the “mass employment numbers” were “clearly hotter than expected.”
He added: “My expectation, and it looks like the market believes, is that this increases the likelihood of a rate hike by the Fed.”
But President Joe Biden welcomed the numbers, emphasizing that the unemployment rate had remained below 4 percent – which he said was the longest stretch in 50 years – while inflation was now “the lowest.” . . a larger economy in the world.”
He said: “It’s not a coincidence. We are growing the economy from the center outwards, from the bottom up.”
Biden also urged lawmakers to “get to work” to reach a deal to keep the government funded after narrowly avoiding a shutdown last month, otherwise it would jeopardize recent job gains.
In the minutes after Friday’s report, the yield on the policy-sensitive two-year Treasury note rose nearly 0.13 percentage points to 5.15 percent. After paring some of those gains, it was still up 0.04 percentage points at 5.06 percent late morning in New York.
The 10-year yield rose 0.17 percentage points to nearly 4.89 percent, while the 30-year yield topped 5.05 percent for the first time since August 2007, although both readings subsequently declined.
The S&P 500 reversed its initial decline to trade 0.8 percent higher just before midday in New York, while the Nasdaq Composite gained 1.0 percent.
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Friday’s report provides the Fed with an important data point as the central bank decides whether its mission to curb inflation is successful – or whether interest rates, already at a 22-year high, must continue to rise. The Fed meets again at the end of the month.
Futures markets on Friday priced in a 50 percent chance that the Fed will raise interest rates again by the end of the year, up from 40 percent before the jobs data was released.
Ajay Rajadhyaksha, head of rates at Barclays, suggested the Fed would have to raise interest rates further unless next week’s consumer price data showed inflation pressures easing.
“I think the Fed has to go unless the CPI is exceptionally weak,” he said, adding that it would be difficult for the bond market to “find a footing” unless jobs were low , “considering how much we have.” already sold out”.
In an indication that the labor market remained strong in the final summer months, the July figure was also revised upward by 79,000 to 236,000.
However, Daleep Singh, global chief economist at PGIM Fixed Income, expressed doubt that Friday’s jobs numbers would “force the Fed to take a more hawkish stance,” arguing that the rise in bond yields was a “substitute” for a Fed reason to to increase key interest rates.
He added that there was “a lot of evidence that the labor market is rebalancing and inflation is cooling.”
According to BLS data, the unemployment rate was 3.8 percent, in line with August and slightly above expectations of 3.7 percent.
Average hourly wages rose 0.2 percent from the previous month, matching the increase reported in August but falling short of expectations for 0.3 percent growth – figures Jefferies’ Thomas Simons said showed the details Friday’s report was “not as robust” as overall wage growth.
On an annual basis, wages rose 4.2 percent, compared to 4.3 percent in the same period last year.
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The Fed kept interest rates at 5.25 to 5.5 percent at its last meeting on September 20. But most central bank officials expect another hike in 2023 and a slower pace of rate cuts over the next two years, according to Fed data Fed.
Many officials have stressed that the Fed can afford to be “patient” after raising interest rates several times in the past 18 months.
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