Traders Brace for US Payrolls With Global Yields at 15-Year High

Bond investors are bracing for fresh signs of strength in the US labor market on Friday after Treasuries tanked on fears the Federal Reserve will hike interest rates higher than previously assumed.

Benchmark Treasury yields rocketed back through 4% this week as a report Thursday showed US companies added almost half a million jobs in June. Next up is the US Labor Department’s snapshot of employment conditions in June.

Sustained evidence of a robust US economy has repeatedly wrong-footed investors who previously bought bonds on the bet that growth would slow down after the Fed spent a year yanking up rates.

Now bonds are being sold on concern inflation will continue to hold north of the Fed’s 2% target, requiring policymakers to raise rates even further. The US selloff was mirrored elsewhere with Bloomberg’s index of global government bonds hitting levels last seen in the financial crisis.

“Looking at the market reaction overnight, stronger-than-expected jobs data, specifically non-farm payrolls, is very important to see how the market will price in the future Fed move,” said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno. “That will probably boost Treasury yields further from here.”

He sees the potential for the US 10-year yield to even hit 6% this year.

Global Yields Hit Their Highest in 15 Years