U.S. Treasury yields rose moderately, while market participants are preparing for the publication of the December labor market report, which may influence the Central Bank's interest rate decision.
The yield on 5-year Treasury bonds increased by 1.4 basis points, reaching 4.463%, while the yield on 30-year bonds was 4.93% (+1.0 basis points), which is the highest level since November 2, 2023. Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 1.7 basis points to 4.279%, while the yield on 10-year bonds increased to 4.692% (+1.1 basis points), reaching its highest level since April 25, 2024.
Later today (at 13:30 GMT) the nonfarm payrolls report for December will provide some insight into the state of the US economy and will be one of the last key pieces of data to be published ahead of the Fed’s meeting at the end of January. According to forecasts, nonfarm payrolls rose by 160 thousand after an increase of 227 thousand in November, the unemployment rate remained at 4.2% and annual wage growth stabilized at 4.0%. Higher readings, particularly for wages, could heighten inflation concerns and weigh on markets' near-term expectations for a Fed rate cut. According to the CME FedWatch Tool, markets see a 6.9% probability of a 0.25% rate cut in January (compared to 10.7% a week ago), while the probability of an additional rate cut in March is 37.9%. Overall, markets have scaled back expectations for Fed's cuts in 2025 to about 40 basis points, while concerns about President-elect Donald Trump's potentially inflationary program have helped boost longer-term yields.