(Bloomberg) — Bonds tumbled and yields hit multi-year highs as a surge in employment fueled expectations that the Federal Reserve would raise interest rates again this year.
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The yield on the 10-year note was nearing 4.9%, and the yield on the 30-year note was above 5%, both the highest levels since 2007. Swap traders are currently pricing in a 1 in 2 chance of a rate hike by December. US stocks recovered from early declines, with large tech companies Microsoft and Advanced Micro Devices keeping the Nasdaq 100 index in positive territory. Tem’s owner, PDD Holdings, soared more than 6%.
Nonfarm employment data showed employers picked up the pace of hiring, adding 336,000 jobs in September, significantly more than economists expected. The unemployment rate remained steady at 3.8%, according to data from the Bureau of Labor Statistics on Friday.
“Today’s report not only shows that the economy is getting too hot and the Fed will need to respond with further rate hikes, but it also shows that the past few weeks have spooked the bond market,” said Seema Shah. “This confirms our view of long-term high prices,” he said. , Chief Global Strategist at Principal Asset Management. “The market is hoping for a perfect landing, but instead faces an uphill road.”
Global bonds are expected to extend their losing streak to a fifth week. The decline has hurt risk assets, from stocks (the S&P 500 is also poised for a fifth week of declines) to corporate credit, on worries that central banks will keep interest rates high for longer than expected.
The latest labor data may also be shaking Wall Street’s confidence in the Fed’s ability to cool the economy without triggering a recession.
“There is a strong possibility that something will break,” Mohamed El-Erian, chief economic adviser at Allianz SE, told Bloomberg TV. A Bloomberg Opinion columnist said Friday’s jobs report was consistent with his claims about a possible recession.
“Investors were looking for a jobs report that was weak enough to prevent the Fed from raising interest rates, but not so weak that it would fuel concerns of a hard landing,” said Bryce Doty, senior portfolio manager at Sitt Investment Associates. ” he said. “It is clear that this report will put rate hikes firmly back on the table.”
“The job market is very strong and there is no other way to say it. The headlines are much stronger than expected,” said Dennis DeBusschere, founder of 22V Research. “That’s what it is. That day is likely to be negative for stocks and bonds.”
Employment reports earlier this week showed a more contradictory picture, with job openings higher than expected, while ADP’s private employment report was weaker than expected.
Read: 5% bond market means everyone is facing pain
Traders have been posting record amounts following the outcome of November’s Fed meeting, as investors and policymakers debate the possibility of further rate hikes this year. San Francisco Fed President Mary Daly said she will not vote on the Fed’s rate-setting committee this year, but the central bank could keep rates unchanged if inflation and the job market cool.
Bank of America’s Michael Hartnett says tattered bonds will make a comeback in 2024, when rising interest rates push the economy into recession.
If the recession that is being priced in by bond and stock markets is reflected in economic data, “bonds should move up significantly and become the best-performing asset class in the first half of 2024,” Hartnett said. wrote in the memo.
The main movements in the market are:
stock
As of 10:46 a.m. New York time, the S&P 500 was down 0.1%.
Nasdaq 100 rose 0.1%
The Dow Jones Industrial Average is little changed.
Stoxx European 600 rose 0.4%
MSCI World Index rose 0.1%
currency
Bloomberg Dollar Spot Index little changed
The euro was almost unchanged at $1.0552.
The British pound rose 0.1% to $1.2207.
The Japanese yen fell 0.5% to 149.25 yen to the dollar.
cryptocurrency
Bitcoin rose 0.5% to $27,620.24
Ether rises 1% to $1,633.18
bond
The 10-year Treasury yield rose 9 basis points to 4.81%.
Germany’s 10-year bond yield rose 3 basis points to 2.91%.
The UK 10-year bond yield rose 6 basis points to 4.60%.
merchandise
West Texas Intermediate crude oil fell 0.5% to $81.89 a barrel.
Gold futures rose 0.5% to $1,841.40 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Cecile Gutscher, Carter Johnson, Sagarika Jaisinghani, Richard Henderson, and John Viljoen.
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