Hot Jobs Lift U.S. Treasury Yields, Raising Rate Expectations

US Treasury yields rose on Friday after new jobs data showed stronger-than-expected hiring. The 10-year yield climbed more than 9 basis points to 4.486%, the 2-year increased about 11 basis points to 4.034%, and the 30-year advanced over 5 basis points to 4.941%. Higher yields often reflect investor expectations of tighter monetary policy in response to stronger economic activity or inflationary pressures.

The Labor Department reported nonfarm payrolls increased by 139,000 in May, above the Dow Jones consensus forecast of 125,000. The unemployment rate held steady at 4.2%.

This stronger hiring print can shift investor sentiment on growth and monetary policy, which in turn influences Treasury yields. Employment trends help indicate whether businesses are expanding their workforces and can provide insight into demand-side pressures that might affect inflation and Fed policy decisions.

A surprise to the upside in job creation may also reinforce the Federal Reserve’s current approach of maintaining interest rates. Short-term interest-rate expectations, reflected in Fed funds futures, show a near-certain probability that the central bank will keep rates unchanged at its June meeting, according to the CME FedWatch tool.

“With the Fed focused on managing upside risks to inflation, today’s stronger-than-expected jobs report is unlikely to change its patient stance,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.