Treasurys Selloff as Dollar Rallies on Robust Jobs Data

Headlining the jobs report released by the Labor Department this morning, nonfarm payrolls rose by 156,000 in the final month of 2016.  While the figure was below expectations of 175,000, a total revision of +19,000 was made to the previous two months, finalizing November’s total at 204,000.  Comprising December’s level, goods sector jobs were up 12,000, displaying the first rise in manufacturing jobs in five months while private service payrolls increased by 132,000 as the education and health service segments experienced the greatest growth.  Adverse weather last month has been pointed to as a potential driver behind the slowdown in job gains.

Completely overshadowing the payroll additions, wages exhibited their fastest YoY rise since June 2009 at 2.9%.  After declining in November, the 0.4% monthly rise in paychecks last month bolsters the argument for an accelerated tightening of monetary policy by the Fed in 2017.  Also supporting a steady labor market, the unemployment rate for December was reported in-line with median forecasts at 4.7%, up 0.1% from the previous month.  In addition, the labor participation rate edged higher from 62.6% to 62.7%, although the reading remains near its lowest levels in 30 years. 

Confirming the positive outlook for economic growth in the new year, Chicago Fed President Charles Evans spoke to reporters today at an American Economic Association conference and said “I still think two (Fed rate hikes) is not an unreasonable expectation … but it’s going to depend on how the data roll out, and if it’s a little bit stronger, three is not going to be implausible.”  Both the Cleveland and Richmond Fed Presidents also came forward this afternoon with statements supporting a faster pace of rate hikes.

US Treasurys sold off following the labor report and Fed rhetoric, as yields/swap rates increased 5-9 bps across the curve, bringing the yield on the 10-year note back up above 2.41%.  The dollar responded by paring the majority of its losses from yesterday, with the Dollar Spot Index up 0.6% throughout the trading session.  The greenback gained against a basket of major peers, including a 0.6% rise against the offshore yuan, 0.7% gain vs. the euro, and 1.1% increase against the pound.  All three major US stock indices also gained on the day, closing up 0.3%-0.6% as the DJIA touched as high as 19,999. 

Have a great weekend.