The 2-year Treasury yield jumped to its highest level since January 2025 after August payrolls data came in far above forecasts. Traders now price higher odds of a Federal Reserve rate hike at the September meeting, pushing yields across most of the curve higher.
Treasury yields climbed Friday after investors weighed a stronger-than-expected jobs report for August against the odds of a Federal Reserve move on rates. The U.S. economy added 162,000 jobs in August, well above the consensus estimate of 53,000 tracked by economists polled by Dow Jones.
The shorter-dated 2-year Treasury note yield rose more than 4 basis points to 4.377%, touching its highest level since January 2025 during the session. The 2-year note tends to track short-term Fed policy expectations most closely.
The 10-year Treasury yield added more than 2 basis points to 4.784%, the benchmark rate underpinning mortgages, auto loans and credit card debt. The 30-year Treasury yield was little changed at 5.245%. Yields and bond prices move inversely to one another.
A hot labor market and sticky inflation — with price growth still above the Fed's 2% target — could give the central bank more cover to raise interest rates at its September 15-16 meeting. Traders responded by raising their bets: the probability of a quarter-point rate hike rose to 58%, about 9 percentage points higher than a day earlier, according to the CME Group's FedWatch tool.
Chris Rupkey, chief economist at FWDBONDS, said: "The only fear is the Fed itself if it thinks economic demand is hot enough".
Investors are now watching fresh inflation data due out next week for the final signals before the Fed's rate decision. Vice President JD Vance on Thursday called on the Fed to cut interest rates to make homes more affordable, a position at odds with Friday's shift in market expectations.
Yields had moved the other way just a day earlier: the 10-year Treasury yield slid more than 2 basis points on Thursday, while the 30-year yield dropped more than 1 basis point.
Source: US Top News and Analysis
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