Rates Climb on Fedspeak and Upbeat Manufacturing Data

Yields driven higher by strong economic data, hawkish Fed commentary. Treasury yields rose 2-4 bps throughout the session, largely fueled by stronger than expected U.S. manufacturing data. Fed President Thomas Barkin also contributed after he stated that he thinks “there is more upside risk than downside risk” to inflation while adding that he would “put myself in the camp of wanting to stay restrictive for longer as opposed to the other school…” Meanwhile, equities surged following the longest streak of losses since April, with the S&P 500 and NASDAQ rising 1.26% and 1.77%, respectively.

U.S. manufacturing conditions improve in December. The ISM manufacturing index climbed to 49.3 in December, above expectations of a decline to 48.2 vs. November’s 48.4 result. Robust orders growth drove the first expansion in the factory output index since May 2024 from 46.8 in November to 50.3, though the overall index was weighed down by worse employment conditions as producers reduced staffing levels throughout the month. Though the release cemented a ninth-straight month of manufacturing sector contraction, the overall index was the closest it’s been to expansion territory (+50) during that nine-month period. Looking ahead, the release indicated that the outlook for the beleaguered U.S. manufacturing sector remains uncertain, despite more optimism from factory managers after Donald Trump’s victory.

Labor data will highlight next week’s slate. The U.S. economy is expected to have added 153k jobs in December after rebounding to 227k hires in November. Meanwhile, the unemployment rate is expected to remain flat at 4.2%, comfortably within pre-covid levels. The forecasts suggest that the labor market remains robust, which would allow the Fed to be cautious with further rate cuts, their stated plan for the year as of December’s policy meeting.