Markets Go Haywire As US Payrolls Defy Gravity: 30-Year Yields Soar To 5%, Dollar Rallies, Equities Tumble

The Bureau of Labor Statistics released an exceptionally strong job market report on Friday, highlighting the impressive resilience of the U.S. labor market in the face of elevated interest rates.

What Happened: Non-farm payrolls surged to 336,000 in September, the highest level since January, significantly surpassing expectations of 170,000. This figure also represents an increase from the revised 227,000 reported for August, which saw a 40,000 upward revision.

The unemployment rate remained at 3.8%, slightly lower than the anticipated 3.7%. Wage growth maintained a month-over-month pace of 0.2%, consistent with the prior month and just below market forecasts of a 0.3% increase. In annual terms, average hourly earnings rose 4.2%, the slowest pace since June 2021 and below market forecasts of 4.3%.

Why It Matters: A hotter-than-expected employment growth signals the resilience and continued tightness of the U.S. labor market, which keeps the Federal Reserve’s focus squarely on the fight against inflation. As the economy demonstrates ongoing strength, the U.S. central bank may leave the door open for an additional interest rate hike this year and maintain a hawkish stance, indicating a commitment to maintaining higher interest rates for an extended period.

Market Reactions: Treasury Yields Rocket, Dollar Strengthens, While Stocks Fear A Fed Hike

The yield on a 30-year Treasury note surged past 5%, hitting the highest level since July 2007. The yield on a 10-year Treasury note also rose substantially, breaking the barrier of 4.80%.

Chart: 30-Year Yields Breaks Above 5%, Highest In Over 16 Years

The U.S. dollar resumed its rally, up 0.3% after falling as much as 0.4% on Thursday. Stocks turned to the red, burdened by renewed concerns about additional Federal Reserve interest rate hikes.

The CBOE Volatility Index (VIX), often referred to as the market’s fear gauge, increased by 5%, once again flirting with the 20 level.

The S&P 500, as tracked by the SPDR S&P 500 Trust SPY was 0.7% lower when Wall Street opened on Friday. The Nasdaq 100, which is replicated by the Invesco QQQ Trust QQQ fell 0.9%.

Tesla Inc. TSLA was the underperformer among the ‘Magnificent 7’ stocks, down 3%.

Every sector in the S&P 500 recorded losses, with the Utilities Select Sector SPDR Fund XLU experiencing the steepest decline, dropping by 2.3%.

Crude regained momentum, with the WTI up 0.6% to $82 a barrel. Gold was flat at $1,820/oz, down pressured by elevated Treasury yields.

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