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Bond Report: Treasury selloff takes a breather ahead of December jobs report

Treasury yields ticked lower Friday as selling pressure paused ahead of a December jobs report that will be used to assess the strength of the labor market amid expectations the Federal Reserve will begin lifting interest rates within months. Read More...

Treasury yields ticked lower Friday as selling pressure paused ahead of a December jobs report that will be used to assess the strength of the labor market amid expectations the Federal Reserve will begin lifting interest rates within months.

What’s driving the market?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 1.723% was at 1.721%, down from 1.733% at 3 p.m. Eastern on Thursday, Yields and debt prices move opposite each other.
  • The 2-year Treasury yield TMUBMUSD02Y, 0.878% was 0.866%, down from 0.88% late Thursday afternoon.
  • The 30-year Treasury bond TMUBMUSD30Y, 2.080% yield was 2.084%, down from 2.093% on Thursday afternoon.
  • The 2-year yield, based on 3 p.m. levels. closed Thursday at its highest since Feb. 27, 2020, while the 10-year yield was the highest since March 31 and the 30-year rate was the highest since Oct. 21. Yields have risen for four consecutive sessions to begin 2022, with the 10-year rate rising 23.7 basis points through Thursday.
What’s driving yields?

The jobs report, due at 8:30 a.m., is expected to show nonfarm payrolls rose by 422,000 last month, according to economists surveyed by The Wall Street Journal, more than double the gain seen in November. The unemployment rate is expected to slip to 4.1% from 4.2%.

Some economists see the potential for a much stronger report based on real-time jobs data and a robust rise in private-sector payrolls reported earlier this week by ADP.

A strong jobs report would likely reinforce expectations for an earlier start to Federal Reserve rate increases. Investors are increasingly penciling in prospects for a hike in March, when the central bank is on track to have fully wound down its monthly asset purchases. Minutes of the Fed’s December policy meeting, released Wednesday, showed that officials felt it might be necessary “to increase the federal-funds rate sooner or at a faster pace than participants had earlier anticipated.” The summary also showed that Fed officials had a wide-ranging discussion of how to move away from its current easy stance by hiking rates and shrinking its balance sheet.

On Thursday, St. Louis Fed President James Bullard said the first rate increase could come as soon as March, and a balance sheet runoff is one of possible next steps for monetary policy. Bullard is a 2022 voting member of the rate-setting Federal Open Market Committee.

San Francisco Fed President Mary Daly is scheduled to participate in a panel discussion about Fed policy at the American Economics Association annual meeting at 10 a.m. Atlanta Fed President Raphael Bostic is slated to discuss the economy at 12:15 p.m.

November consumer-credit data is due at 3 p.m.

What are analysts saying?

“We think the surge in yields since the beginning of the year suggests investors are now focusing on a strong economy with elevated inflation,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.

“On the other hand, the Fed has made it clear that monetary policy is soon to change, therefore influencing the bond market as it adjusts to several factors such as future supply. Nonetheless, we think the big spike up since the beginning of the year is likely reaching a near-term peak.”

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