Two-year yield jumps as payrolls revive hike bets
The two-year yield jumps to about 4.52% after October payrolls beat expectations, as traders raise bets on a December Fed hike and the dollar strengthens.
The bond market wasted little time pricing in a more hawkish Fed. The two-year yield jumps to about 4.52% on November 6 after the October jobs report showed 165,000 new positions, far more than economists had expected.
What happened
CNBC said the two-year Treasury note yield rose more than 4 basis points to 4.522%, while the benchmark 10-year yield gained more than 2 basis points to 4.864% and the 30-year added more than 1 basis point to 5.263%. Reuters, in its first reaction after the release, put the two-year up 6 basis points at 4.52%, the 10-year up 3 basis points at 4.87% and the 30-year at 5.27%.
The dollar index rose 0.7% to 102.22, according to Reuters. Fed funds futures priced a more than 77% chance of a quarter-point hike at the December 9 meeting, up from more than 66% the previous day, CNBC reported, citing the CME FedWatch tool. Reuters put the post-data odds at 78%, from 70% earlier. The target range stands at 3.75% to 4.00% after September's increase.
Other markets followed the rate move. Yahoo Finance quotes at the close showed gold down 0.83% at $4,079.50 an ounce and December crude little changed at $90.34, while bitcoin hovered near $75,815. Savvy Wealth's Anshul Sharma told Reuters that "good news on jobs is complicated news on rates," adding that a December hike stays on the table with wages up 0.4% on the month.
Why it matters
Short-dated yields move most when rate expectations shift, so a bigger rise at the front end than in the 10-year signals that traders are pricing a nearer hike rather than long-term growth. Friday's move reverses the direction of the late-October slide tracked in our Treasury yield plunge report, when an AI scare pulled yields lower.
When the two-year yield jumps this fast, rate-sensitive assets tend to feel it. Higher cash returns raise the bar for bitcoin, gold and long-duration tech stocks, all of which were already shaken by Thursday's selloff. FWDBONDS economist Christopher Rupkey wrote that officials may wish they had hiked last week, arguing rates are heading "much higher." Fed officials such as Waller have been arguing for additional hikes, and Friday's data gives that camp more support.
What's next
The October CPI report on November 10 is the next catalyst, followed by the Fed's December 9 decision. Bond traders will also watch whether the 10-year yield, at about 4.86% on Friday, pushes back toward 4.9% as the front end reprices. A hot reading would likely push the two-year higher still and lock in December pricing; a soft one could pull yields back toward the levels seen before the jobs data.
If the two-year yield jumps again after CPI, pressure on the dollar-sensitive corners of crypto and commodities would likely build. CNBC's Treasury market report has Friday's closing levels.
This article is for information only and is not investment advice.