Bond Yields Continue to Rise Ahead of the Jobs Report in the U.s.

The earlier selloff of Treasurys on Friday experienced an abrupt interruption, thanks to a weaker-than-expected report from the Institute for Supply Management (ISM). This unexpected turn of events triggered a wave of buying activity, causing the benchmark 10-year yield to retreat below the 4% mark.

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Breaking down the yield movements on various Treasury notes:

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) stood at 4.325%, reflecting a 5.7 basis point decrease from the Thursday figure of 4.382%.
• The yield on the 10-year Treasury (BX:TMUBMUSD10Y) witnessed a decline of 3.3 basis points, settling at 3.957% as opposed to Thursday's 3.990%.
• The 30-year Treasury (BX:TMUBMUSD30Y) recorded a marginal drop of less than 1 basis point, with the yield at 4.127% compared to Thursday's 4.136%.

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The pivotal factor influencing these market dynamics was the release of data indicating a stumble in the U.S. economy towards the end of the preceding year. This data emanated from the ISM's survey of business conditions at service-oriented companies. The survey results for December indicated a decline to 50.6%, down from the previous month's 52.7%. Although still above the 50% threshold deemed positive for the economy, it fell short of the 52.5% level anticipated by economists surveyed by The Wall Street Journal.

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Surprisingly, the ISM's data managed to shift sentiment in the bond market, overshadowing an unexpectedly robust jobs report. According to the released data, the U.S. added 216,000 new jobs in December, surpassing the expected gain of 170,000. The unemployment rate remained steady at 3.7%, and hourly wages exhibited a 0.4% increase for the last month, contributing to a 4.1% rise over the past year.

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This turn of events prompted Fed funds futures traders to revert to pricing in a more than 60% probability of the first quarter-point rate cut from the Federal Reserve occurring by March. Additionally, these traders now perceive an 88.4% likelihood of experiencing five to seven rate cuts of that magnitude by the end of the year.

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In summary, the market's trajectory on Friday, characterized by the Treasury selloff, took an unexpected turn due to the influence of the ISM's report. This report, revealing a stumble in the U.S. economy, managed to overshadow positive job market data and prompted a renewed focus on potential Federal Reserve rate cuts in the near future. Investors and analysts will closely monitor these developments, anticipating further implications for the broader economic landscape.