What’s going on here?

The benchmark 10-year US Treasury yield topped 4% after strong jobs data shook market expectations, suggesting the Federal Reserve might hold off on another major rate cut.

What does this mean?

September brought an unexpected boost as the US economy added 254,000 jobs, nudging the unemployment rate down to 4.1%. This robust job growth shifted market expectations around the Fed’s monetary policy, with the likelihood of a 25 basis point rate cut at its next meeting dropping to 85% from over 90%. Meanwhile, the two-year Treasury yield rose to its peak since mid-August, reflecting diminished expectations for further rate cuts. Still, the brief inversion of the yield curve between 2-year and 10-year Treasuries signals enduring economic uncertainties. Analysts recognized the labor market’s strength as a shield against recession fears, prompting a swift market sentiment adjustment.

Why should I care?

For markets: Volatile markets find a beating heart in jobs data.

The robust employment numbers have eased recession jitters, potentially shifting investment strategies. The selloff in Treasuries, pushing yields above 4%, indicates investors might consider extending durations once volatility subsides. As Treasury auctions near, elevated yields could spark renewed interest, while the upcoming CPI release could influence the Fed’s future policy decisions.

The bigger picture: Jobs over inflation in the monetary game.

As the Fed deliberates its next steps, labor market indicators are overtaking inflation as key concerns. This shift might reshape global monetary strategies, impacting both governments and businesses navigating this evolving landscape. The forthcoming CPI figures will add another dimension to the Fed’s decision-making process, but with employment robust, economic strategies may increasingly rely on job market metrics rather than just inflation warnings.