2-year yield rises to highest since January 2025 after hot jobs report boosts expectations that the Fed could raise rates
Treasury yields rose as the hot jobs report along with sticky inflation may give the Fed more cover to hike interest rates in September.
Treasury yields moved higher on Friday as market participants processed a surprisingly strong August employment report and considered how the data might shape the Federal Reserve’s next policy decision.
Yield Movements
The benchmark 10‑year Treasury note, which influences mortgage rates, auto financing and credit‑card interest, edged up by just under four basis points to settle at 4.802 percent. The shorter‑term 2‑year Treasury, closely tied to the Fed’s short‑run rate outlook, jumped more than seven basis points, landing at 4.425 percent – a level not seen since January 2025. The long‑dated 30‑year Treasury, often responsive to geopolitical developments, held steady around 5.263 percent. For reference, one basis point equals one‑hundredth of a percent, and Treasury yields move inversely to bond prices.
HOT Jobs Report
U.S. payrolls increased by 162,000 jobs in August, far exceeding the 53,000 jobs economists surveyed by Dow Jones had projected. The surge in hiring arrives while price growth remains above the Fed’s 2 percent inflation goal, suggesting a labor market that is both vigorous and resistant to cooling measures. Such conditions could give the central bank additional justification to raise rates at its September policy meeting.
Rising Hikes Expectations
Traders responded to the data by boosting their odds that the Fed will lift rates by a quarter‑percentage point at the September 15‑16 gathering. The CME Group’s FedWatch tool now shows a 58 percent probability of a hike, roughly nine percentage points higher than the estimate a day earlier. This shift reflects heightened market belief that the economy’s strength may outweigh concerns about higher borrowing costs.
Analyst Commentary
Chris Rupkey, chief economist at FWDBONDS, observed that Fed officials have described the employment landscape as stable, yet the latest payroll numbers reveal hiring that is unusually robust given elevated energy prices and an ongoing affordability squeeze. Rupkey warned that the only real risk may come from the Fed itself if it interprets the strong demand as a signal to tighten policy in the near term.
Inflation Data on the Horizon
All eyes now turn to the inflation figures slated for release next week. Those numbers will provide the final clue for policymakers as they decide whether to adjust the target range for the federal funds rate at the September meeting.
Political Pressure
On Thursday, Vice President JD Vance urged the Federal Reserve to lower rates in order to make home ownership more affordable. That appeal followed a modest retreat in bond yields the previous day, when the 10‑year note slipped more than two basis points and the 30‑year fell just over one basis point. The juxtaposition of political calls for easing and market expectations of tightening underscores the delicate balance the Fed faces as it navigates a hot labor market and persistent inflation.
Source: CNBC · 2026-09-04