Treasuries (TLT) slumped as stronger-than-expected U.S. job and wage growth prompted traders to trim bets on Federal Reserve rate cuts, sending yields across the curve sharply higher. The benchmark 10-year note’s yield climbed 10 basis points to 4.49%, while shorter-dated tenors, more sensitive to Fed moves, jumped as much as 12 basis points. Equities also rallied, with the S&P 500 up over 0.7%, as investors rotated out of bonds into risk assets.
Interest-rate swaps now show roughly a 70% chance of a quarter-point cut by September, down from about 90% on Thursday, and pricing in just 45 basis points of easing for the year—fewer than two quarter-point moves. “You are seeing a bit of the bond market pricing out Fed expectations,” said Jeffrey Rosenberg, portfolio manager at BlackRock. U.S. nonfarm payrolls rose by 139,000 in May—beating the 126,000 forecast—and wage growth accelerated, while the unemployment rate held at 4.2%.
Market Moves:- 10-year Treasury yield jumped to 4.49%; shorter-dated rates rose by up to 12 bp
- S&P 500 gained over 0.7% as equities benefited from strong job data
- Dollar index ticked higher after the report, trimming weekly losses to 0.3%
- Nonfarm payrolls increased by 139,000 in May after downward revisions of 95,000
- Hourly wages picked up, reinforcing a still-tight labor market
- ADP reported slower May hiring, and job openings unexpectedly rose in April
- Fed officials await more data amid tariff-driven uncertainty before cutting rates
- Rate cut odds for June and July nearly zero; September bets trimmed
- CPI data for May due June 11; core inflation expected to accelerate slightly
- Stronger-than-expected U.S. job and wage growth in May signals continued resilience in the labor market, with nonfarm payrolls rising by 139,000 and hourly wages accelerating, supporting consumer spending and economic momentum.
- The unemployment rate held steady at 4.2%, and job openings unexpectedly rose in April, suggesting that despite some sectoral softness, overall labor demand remains robust.
- Equities rallied, with the S&P 500 up over 0.7%, as investors rotated out of bonds and into risk assets, reflecting optimism that the economy can withstand higher rates without tipping into recession.
- Market participants now expect fewer Fed rate cuts in 2025, which could indicate confidence in underlying economic strength and help anchor inflation expectations.
- Fed officials have emphasized patience and data dependence, suggesting that monetary policy will remain supportive of growth if inflation risks subside.
- Strong job growth in health care and leisure/hospitality sectors points to continued expansion in key areas of the economy, even as manufacturing and retail face headwinds.
- Treasury yields surged across the curve (10-year to 4.49%, shorter-dated rates up as much as 12 basis points) as traders trimmed bets on Federal Reserve rate cuts, raising borrowing costs for businesses, consumers, and the government.
- Interest-rate swaps now price in just 45 basis points of easing for the year—fewer than two quarter-point moves—down from earlier expectations, increasing the risk that monetary policy remains restrictive for longer.
- While headline job growth was solid, downward revisions to March and April data (a combined 95,000 jobs lower) indicate a weaker labor market than previously thought, and private sector hiring slowed to just 37,000 in May, the lowest in over two years.
- Wage growth and the tight labor market may keep inflation elevated, especially with tariff-driven price pressures, complicating the Fed’s path to rate cuts and risking stagflation if economic growth slows further.
- Fed officials and economists warn that ongoing tariff uncertainty and higher-for-longer rates could dampen hiring, investment, and consumer confidence, especially if inflation remains sticky.
- Upcoming CPI data and further labor market reports will be critical—any signs of persistent inflation or renewed job market weakness could trigger renewed volatility in both bond and equity markets.
Fed policymakers have emphasized that they need time to assess the economic impact of tariff-related shocks, with no rate moves expected at the June 17-18 meeting. Treasury auctions of three- and 10-year notes and 30-year bonds are looming, and yield expectations remain elevated following the selloff.
The recent data underscore a mixed labor-market picture: ADP’s May report showed a deceleration in private-sector payroll gains to a two-year low, even as job openings rose. Citigroup economists shifted their Fed forecast to a September cut versus July, although most banks still expect only one cut this year. With curve-steepening trades losing steam, investors will turn their attention to next week’s CPI release to gauge the persistence of disinflation.
