- Bond yields spiked after the January jobs report.
- While hiring in January was weaker than expected, other data indicates a strong labor market.
- Markets increased bets that the Fed will keep rates steady
Bond yields shot up on Friday as markets took in the January jobs report.
While the nonfarm payroll report showed employers added fewer jobs than expected last month, traders dialed up bets that rates would remain higher for longer amid strong data points elsewhere.
The yield on the 10-year US Treasury rose sharply in the morning, rising as much as six basis points to hit 4.5%. The move came shortly after the job market posted fewer hires than expected in January, adding 143,000 jobs compared to estimates of 169,000.
Investors also increased their bets that the Fed will keep interest rates steady in the coming months. According to the CME FedWatch tool, the probability that the central bank will skip a rate cut at its March policy meeting rose to 91% on Friday, up from 84% a week ago.
The probability that rates will remain unchanged at the Fed’s May policy meeting also rose to 70%, up from 60% a week ago.
A miss in monthly payroll estimates has often been greeted by investors as a sign the Fed could turn more dovish, but the January report flashed other signs of strength that dimmed the outlook for near-term rate cuts.
“The Fed will not see any reason from the jobs report to change their near-term plans,” Bill Adams, chief economist at Comerica Bank, said.
Wages, which have big implications for inflation, climbed 4.1% year-over-year, above the 3.8% growth economists were expecting. The unemployment rate also eased to 4%, the lowest level since May of last year. Meanwhile, job gains for the months of November and December were revised up by a combined 100,000.
Investors were upbeat about labor-market strength but cautious about what it means for interest rates as 2025 progresses.
“Although January payrolls missed consensus expectations by 27k, revisions to the prior two months of +100k net out to a +73k change in payrolls relative to expectations,” Jason Pride, chief of investment strategy and research at Glenmede, wrote in a note on Friday. “The Fed has already been pushing out expectations for its next rate cut, and this report probably justifies that approach, if not nudging them to push out expectations even further.”
