Beleaguered US Bond Market Looks to Jobs Report for Reprieve
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(Bloomberg) — The beaten-down US government bond market is looking for a reprieve from Friday’s December employment report.
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While bearish wagers have been growing, the steep rise in yields since mid-September may mean that strong data will hurt the market less than weak data will help it, some investors and strategists say.
Yields near 5% — a threshold the 20-year bond crossed this week for the first time since 2023 — also may overestimate the risk of higher inflation under President-elect Donald Trump, who takes office Jan. 21. Solid demand for Wednesday’s auction of 30-year bonds offering the highest yield in more than a decade suggested investors see value in the market.
“We’ve seen a pretty decent selloff in Treasuries, with it being basically a straight line higher in yields since early December,” said Subadra Rajappa, head of US rates strategy at Societe Generale. “It seems time for the market to take a bit of a breather between now and the presidential inauguration.”
The benchmark 10-year note’s yield briefly topped 4.72% on Wednesday, more than a full percentage point higher since mid-September, when the Federal Reserve did the first of three interest-rate cuts. A Bloomberg gauge of Treasury returns is down 0.4% so far this year.
The cuts, which totaled a percentage point, were aimed to protect the job market from too-high rates following an increase of more than five percentage points over the previous two years. But combined with the election outcome they’ve rekindled anxiety about inflation. Expectations for additional rate cuts this year have collapsed.
The 10-year has scope to rise to 4.75% if the December jobs data are strong, Rajappa said. To reach 5%, however, will probably take concrete policy action by the incoming administration, she said.
On a higher unemployment rate or soft job-creation figure, however, “you could see a further pullback to lower yields,” Rajappa said. “It will look like the market had got a little ahead of itself in pricing out a lot of Fed rate cuts for this year.”
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The median estimate of economists in a Bloomberg survey is for a 165,000 increase in employment in December, a down-shift from 227,000 in November. They see the unemployment rate holding steady at 4.2%.
“The economy is still very resilient,” said Tracy Chen, a portfolio manager at Brandywine Global Investment Management. “And I’m concerned because it looks like inflation is re-accelerating,” she said, adding that she doesn’t think long-term Treasury yields have peaked.
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