Treasury Yields Jump as Strong Jobs Report Shifts Fed Rate Hike Odds

The US Treasury market saw little movement on Thursday ahead of the August nonfarm payrolls release. Traders were cautious, not wanting to take a position on whether the Federal Reserve would raise interest rates again.

However, when the jobs report was released, the calm quickly evaporated. The actual figure came in at 162,000 new jobs for August, significantly higher than the expected range of 53,000 to 56,000. The unemployment rate remained steady at 4.1%.

The benchmark 10-year Treasury yield sat near 4.75%, while the 2-year note hovered around 4.34%. After the payroll number was released, the 2-year yield climbed about 5 basis points to roughly 4.39%, and the 10-year pushed up about 2 basis points to near 4.78%.

The jobs report has made the Federal Reserve's next meeting more interesting. Market-implied odds for a quarter-point rate hike at the September 15-16 meeting climbed back above 50%. This is in contrast to earlier in the week, when Fed Governor Christopher Waller delivered comments that leaned dovish and emphasized disinflation progress.

The jobs report is just one part of the Federal Reserve's dual mandate. Inflation data will also play a crucial role in determining whether Friday's strong payroll number translates into action at the September meeting. Upcoming Consumer Price Index and Personal Consumption Expenditures releases will be closely watched by traders.