Robust Jobs Data Fuels Sharp Rise in Treasury Yields

The week ended with volatility spread across all sectors of the financial world as investors reacted to a better-than-expected jobs report and higher-than-expected consumer confidence data. Yields rose on the back of the news as investors increased bets on accelerating inflation from this growing economy.

U.S. Economic Reports

The U.S. Labor Department reported Friday that the U.S. economy added 200,000 jobs in January, beating economist expectations of 180,000 jobs added. The unemployment rate came in as expected at 4.1%, unchanged from the previous month.

In addition to the robust headline news, yields were driven higher by strong evidence of rising wages. Average hourly earnings posted a 0.3 percent gain for the month and an annualized gain of 2.9 percent, the best gain since the early days of the recovery in 2009.

December’s nonfarm payrolls increase was revised upward to 160,000 from 148,000. The Labor Department also revised upward its December wage reading to 0.4 percent from 0.3 percent.

Yields were also pushed higher after the University of Michigan’s consumer sentiment index fell less than expected in January. The index fell to 95.7 last month from 95.9 in December. Economists were looking for a reading of 95.

Factory goods orders rose 1.7 percent, advancing for a fifth straight month, the Commerce Department said on Friday. November’s report was revised to show orders jumping 1.7 percent instead of the previously reported 1.3 percent increase.

Economists had forecast factory orders climbing 1.5 percent in December. Orders increased 6.0 percent in 2017.

U.S. Treasury Markets

The 10-year Treasury yield jumped to a four-year high after a better-than-expected jobs report reflected rising wages. The 10-year Note was up roughly 4 basis points at 2.837 percent, while the yield on the 30-year Treasury Bond was up roughly 5 basis points at 3.08 percent. This was its highest level since March.

Yields rose all week, but the biggest jump occurred the last two days of the week. The current surge started on Thursday when the Atlanta Fed adjusted its GDP outlook higher to 5.4 percent in the first quarter, pushing the 10-year yield and the 30-year yield more than 5 basis points higher on Thursday.

Earlier in the week, the Federal Reserve signaled inflation was set to rise in its Wednesday monetary policy statement, although it kept its benchmark rate unchanged.