The 10 year Treasury yield rose to about 4.87 percent after the jobs report, and the dollar had its biggest daily gain in nearly five months, in a bond and currency reaction that moved first and set the tone for everything that followed. The 10 year yield rose about 4 basis points, and the 2 year yield, which is especially sensitive to expected changes in the federal funds rate, climbed about 5 basis points to around 4.52 percent.
Why it matters
The dollar index gained about 0.7 percent to 102.22, its biggest daily gain in nearly five months, and spot gold fell nearly 1 percent to about 4,050.95 dollars an ounce. The bond and currency markets moved first, and the stock market followed, with the Nasdaq rising 1.09 percent on Friday even as the Dow fell 0.46 percent, in a split that held all day and showed a market trying to hold two ideas at once.
The reason is the number itself. Employers added 165,000 jobs in October, more than two and a half times the 65,000 economists had expected, and the unemployment rate dipped to 4.1 percent from 4.2 percent. A payroll figure close to the consensus could have steadied nerves, but the actual figure did the opposite: it argued that the economy does not need relief, and that the Fed inflation fight still has a strong labour market underneath it.
What happens next
The rate path has swung twice in two days, and it may swing again. On Thursday, interest rate traders pushed back the expected timing of the next Federal Reserve rate hike to March, after the selloff reshaped market pricing. On Friday, the stronger than expected jobs report pushed the odds of a December hike back up to about 78 percent, and the hike is now the base case again, with the CME FedWatch Tool putting the odds back up toward 80 percent.
What happens next will be decided by the October consumer price report on Tuesday, November 10, the last inflation reading before the Federal Reserve December 8 and 9 meeting. A hot inflation number would strengthen the case for a December hike and could push the odds higher still, while a cool one would let the Fed wait and could send the bets back to March. For now, the message from the bond market is that the hike is still coming, and sooner than traders thought on Thursday.
