U.S. government bonds and stocks fell after a tepid jobs report

US government bonds and stocks sold off. As the jobs data revealed labor conditions, traders raised expectations of a Federal Reserve interest rate hike.

Treasury yields rose after a closely watched U.S. jobs report showed employers added 528,000 jobs in JulyThat was more than double the 250,000 expected by economists and up sharply from 398,000 in June.

Two-year Treasury yields, which are sensitive to monetary policy expectations, rose more than 0.2 percentage points to 3.27 percent — a sharp improvement for a market that typically moves in small increments. Long-term bonds came under more modest pressure.

Meanwhile, the S&P 500 fell 0.4 percent in the afternoon, as traders worried about the prospect of more hawkish rate hikes. feeder. The tech-heavy Nasdaq Composite, a component particularly sensitive to interest rates, fell 0.8 percent. Both indices recovered some losses from the previous day.

“The story has gotten really hot, the Fed was right, and the markets were wrong,” said Jim Paulson, chief investment strategist at The Luthold Group. “I think it’s a muted response . . . in the stock and bond market relative to the emotion created by the headline numbers.”

The jobs data caps a week where market participants raised expectations for tighter monetary policy in the U.S. after comments from several central bank officials.

San Francisco Fed President Mary Daley, the Fed’s “Nowhere near” Its struggle to reduce inflation continues to run at a 40-year high. Chicago Fed President Charles Evans said he thought a 0.5 percentage point increase would be appropriate at the next policy meeting in September. However, he left the door open to a 0.75 percentage point hike, saying that would be “okay”.

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Federal funds futures trading on Friday showed markets expected the central bank’s key interest rate to hit 3.64 percent in March 2023, up from 3.46 percent before the jobs report was released. The federal funds rate is currently in the range of 2.25-2.50 percent.

Strong jobs data that showed the unemployment rate had returned to a half-century low helped ease some concerns that the world’s largest economy could be headed for recession. That could inspire the central bank to continue its rapid rate hikes after raising borrowing costs by 0.75 percentage points in June. July.

“The unexpected acceleration in nonfarm payrolls growth in July, along with a further decline in the unemployment rate and a renewed increase in wage pressures, make a mockery of claims that the economy is on the brink of recession,” Michael said. Pearce, an economist at Capital Economics, said, “All the details [of the report] Continued aggressiveness by the central bank appears to support rate hikes.

However, the impact of the jobs report on the Treasury market is that yields on two-year Treasuries are higher than those on the 10-year benchmark. This so-called inversion of the yield curve is generally considered an indicator of impending economic contraction. Following the data, inter-yield spreads have been inverted since August 2000.

An index that tracks the currency against half a dozen peers rose 0.8 percent following Friday’s rise in U.S. dollar Treasury yields. The pound and euro each fell about 0.6 percent, while the Japanese yen fell 1.7 percent.

European shares fell among stocks, with the regional Stoxx 600 down 0.8 percent. Asian shares gained, with Hong Kong’s Hang Seng index up 0.1 percent.

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