The 10-year T-note yield last Friday posted a 16-year high of 4.885% and is up more than +100 bp this year. Elevated U.S. consumer prices and a surprisingly strong labor market have bolstered expectations for the Fed to keep interest rates higher for longer. Resilient demand in the U.S. economy has complicated the Fed’s efforts to get inflation down to its 2% preferred level and has fueled the recent rise in Treasury yields.
Last Friday’s monthly U.S. payrolls report was surprisingly strong and didn’t settle the debate about whether the Fed is done hiking interest rates. U.S. Sep nonfarm payrolls surged +336,000, well above expectations of +170,000 and the largest increase in eight months. Also, Aug nonfarm payrolls were revised upward by 40,000 to +227,000 from the initially reported +187,000. The only bright spot for the Fed in the payrolls report was an easing of wage pressures after U.S. Sep average hourly earnings eased to +4.2% y/y, weaker than expectations of +4.3% y/y.
