10-Year Treasury Yields Spike as December Jobs Surge Stuns Stock Market

10-Year Treasury Yield Surges on Strong Jobs Report, Pressuring Stocks and Fed Outlook

U.S. Treasury yields jumped to their highest levels since November 2023 after a much stronger-than-expected December jobs report. The spike in yields fueled concerns about tighter Federal Reserve policy, sending stock futures sharply lower and boosting the U.S. Dollar.

December Jobs Report Exceeds Expectations

Nonfarm payrolls rose by 256,000 in December, far surpassing the Dow Jones forecast of 155,000 and November’s upwardly revised 212,000. The unemployment rate edged down to 4.1%, slightly better than expected, while a broader measure of underemployment fell to 7.5%, its lowest level since June 2024.

Key sectors driving job growth included health care (+46,000), leisure and hospitality (+43,000), and government (+33,000). Retail employment rebounded, adding 43,000 positions after a November decline. Wage growth remained moderate, with hourly earnings increasing 0.3% month-over-month and 3.9% year-over-year, below expectations. The data suggests wage-driven inflation is cooling, potentially easing one aspect of the Fed’s inflation challenge.

Treasury Yields Spike, Dimming Rate-Cut Hopes

The 10-year Treasury yield surged nearly 10 basis points to 4.778%, its highest level in over a year. The 2-year yield climbed even more steeply, rising 12 basis points to 4.377%. Futures markets now price less than a 3% probability of a rate cut at the Federal Reserve’s upcoming policy meeting, signaling expectations of a prolonged restrictive monetary stance.

Stock Futures Slide Under Pressure

Equity markets reacted negatively to the labor data, with S&P 500 futures falling 1%, Nasdaq-100 futures sliding 1.2%, and Dow Jones Industrial Average futures losing 336 points (0.8%). Investors fear that persistently strong job growth could extend the Fed’s tightening bias, increasing the cost of capital and further pressuring equity valuations.

U.S. Dollar Gains; Gold and Silver Struggle

The U.S. Dollar strengthened on expectations that the Federal Reserve will maintain higher interest rates. The dollar index advanced, bolstered by confidence in the U.S. economy and fading prospects for near-term monetary easing.

Gold and silver were steady but underperformed as a stronger dollar and rising bond yields weighed on demand. Gold held below its session highs, while silver mirrored similar price action. Both metals remain at risk of further downside if the dollar continues to rally.

Market Outlook: Rising Yields and Dollar Pose Headwinds

The robust jobs report underscores the resilience of the U.S. economy, reducing the likelihood of near-term rate cuts. Rising bond yields and a strengthening dollar are expected to keep equity markets under pressure and limit upside potential for precious metals. Traders should monitor upcoming inflation data and Fed communications for signals that could shift sentiment.

More Information in our Economic Calendar.