Strong Labor Market Pushes Rates Higher to End the Week

Rates end the day off the highs but climb once again on strong payrolls report. Swap rates and Treasury yields jumped higher for the third consecutive day, the 10-year Treasury yield closing in on 3% before closing at 2.93%. The clear catalyst today was the strong jobs report which showed a buoyant jobs market and elevated wage inflation. This week marked a pronounced shift away from growth concerns and back towards the inflation picture. Rates climbed throughout the holiday-shortened week and rose by a cumulative 15-20bps across a range of maturities.

Jobs report impresses. Nonfarm payrolls beat expectations- rising by 390,000 vs. forecasts that called for an increase of 320,000. Average hourly earnings rose by a 5.2% annualized rate, meeting expectations but remain exceptionally high. If there was a disappointment it was in the unemployment rate which remained steady at 3.6% (vs. forecasts that called for a decline to a new record low of 3.5%).

Week ahead. The Fed is entering its quiet period next week ahead of the FOMC’s mid-month meeting. That means all attention will be on the final remaining economic data before the next rate decision. The week will start on a quiet note but end with a bang- the closely watched CPI data coming out on Friday.