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The US economy created 256,000 jobs in December, beating expectations and sending yields on long-term US government debt to their highest level since 2023.
The number from the Bureau of Labor Statistics on Friday exceeded the expectation of economists polled by Reuters of 160,000, and was more than the downwardly revised number of 212,000 positions added in November.
Treasury yields rose as investors bet that Federal Reserve will be slow to lower interest rates this year. Futures markets pushed back the expected timing of the first quarter to September from June ahead of the data release. The chances of a second cut this year have dropped to around 20 percent from around 60 percent.
The two-year Treasury yield, which tracks interest rate expectations and moves inversely to bond prices, rose 0.11 percent to 4.37 percent. The benchmark 10-year yield rose 0.09 basis points to 4.77 percent – the highest level since November 2023.
Stock futures fell, with contracts tracking the S&P 500 down 0.8 percent. The dollar rose 0.4 percent against a basket of six other currencies.
“This number emphasizes that there is no need for the Fed to rush. . . it ensures they have to hold off for a few months,” said Eric Winograd, chief economist at AllianceBernstein.
He added that the bond market is already “over”.
Friday activities The data was hotly anticipated on both sides of the Atlantic amid a sell-off in government bond markets, fueled in part by growing expectations that the Fed will cut interest rates only slightly in 2025.
British Prime Minister Rachel Reeves has become increasingly popular pressure this week after government borrowing costs rose, leaving him unable to meet his self-imposed financial commitments.
UK bond yields rose after the publication of US jobs figures. The 10-year gilt yield rose to 4.88 percent, up 0.07 percent from the day's high, but below the 16-year high of 4.93 percent earlier this week.
US president-elect Donald Trump's plans to cut taxes, impose tariffs and restrict immigration have led the Fed to signal that it will be more cautious in 2025.
The central bank in December forecast only two quarterly rate cuts this year, compared to a fourth forecast in September, partly due to continued tightening in the labor market.
Jeff Schmid, a senior Fed official, he said on Thursday that the US central bank was “very close” to meeting its goals regarding inflation and employment, underscoring the expectation that policy makers will stop lowering interest rates this year.
The Fed began cutting its key interest rate in September, reducing it by a full 1 percent by the end of 2024.
At the next meeting later this month, the US central bank is widely expected to keep interest rates steady at a target level between 4.25 and 4.5 percent.
Friday's figures showed the unemployment rate was 4.1 percent, compared to 4.2 percent in November.