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The U.S. added 336,000 new jobs in September, more than expected, pushing bond yields to a new 16-year high and stoking investor concerns that interest rates will remain high for a longer period.
The Bureau of Labor Statistics data easily beat expectations for 170,000 new jobs, reigniting the bond selloff that has roiled global markets over the past two weeks.
U.S. government borrowing costs hit a ten-year high since 2007 after the 336,000 figure was released, well above August’s upwardly revised total of 227,000.
Bonds recovered somewhat after their initial selloff, but yields remained near their highest levels in more than a decade, reflecting market expectations that the U.S. Federal Reserve will keep interest rates high for longer.
Wylie Tollett, chief investment officer at Franklin Templeton Investment Solutions, said the “hot jobs figures” were “clearly warmer than expected.”
He added: “My expectation and the market’s belief is that this increases the odds of a Fed rate hike.”
But President Joe Biden presented statistics showing the unemployment rate was below 4 percent, the longest in 50 years, while inflation was now “the lowest . . . of any major economy in the world.”
He added: This was no accident. We are growing the economy from the middle, from the bottom up.
Biden urged lawmakers to “work” to reach a deal to fund the government after a shutdown was narrowly avoided last month or risk affecting recent job gains.
Minutes after Friday’s report, the yield on the policy-sensitive two-year Treasury note rose nearly 0.13 percentage points to 5.15 percent. After paring some of those gains, it rose 0.06 percentage points to 5.08 percent in afternoon trade in New York.
The 10-year yield added 0.17 percentage points to nearly 4.89 percent, while the 30-year yield touched 5.05 percent for the first time since August 2007, though both retreated.
The S&P 500 reversed its early decline and was up more than 1.4 percent in afternoon trade in New York. The Nasdaq composite rose 1.8 percent.
Friday’s report provides an important data point for the central bank as it decides whether its mission to rein in inflation is succeeding — or if rates, already at 22-year highs, should rise further. The central bank meets again at the end of the month.
Futures markets on Friday were pricing in a 50 percent chance the central bank will raise interest rates once again before the end of the year, up from 40 percent ahead of the jobs data.
Ajay Rajadiksha, head of rates at Barclays, suggested the central bank may raise rates further unless consumer price data next week shows an easing of inflationary pressures.
Unless the CPI is unusually weak, I think the Fed should go,” he said, adding that unless the jobs numbers are low, given “how much we have,” it will be difficult for the bond market to “find a footing. It’s already sold off.”
July’s figure rose by 79,000 to 236,000, a sign that the labor market has been strong in recent summer months.
But PGIM Fixed Income chief global economist Dalip Singh expressed doubt that Friday’s jobs figures would push the central bank into a “more bearish posture,” arguing that a rise in bond yields was an “alternative” to raising benchmark rates.
“There is ample evidence that the labor market is recovering and inflation is cooling,” he said.
BLS data showed the unemployment rate at 3.8 percent, slightly above August’s figure and expectations of 3.7 percent.
Average hourly wages rose 0.2 percent for the month, matching a reported increase in August, but coming in below expectations for 0.3 percent growth — figures that Thomas Simons at Jefferies said were “not as strong” as the headlines in Friday’s report. Wage growth.
On an annual basis, wages rose 4.2 percent, compared with 4.3 percent in the previous period.
The central bank kept interest rates at 5.25-5.5 percent at its most recent meeting on September 20. But most central bank officials expect one more increase in 2023 and slower tapering over the next two years. feeder
Several officials insisted the central bank could remain “patient” after raising interest rates several times over the past 18 months.