The 2-year yield is higher by a large 16 basis points today after the non-farm payroll (NFP) report came in above expectations (272k jobs added versus 180k expected.) It was a big “beat”, but more importantly for the bond market, it didn’t corroborate the recent trend of weaker economic data that has brought yields lower since the beginning of May. It has cast doubt on which way economic data is going.

There are many ways to criticize the integrity of this Non-farm payroll number and it contradicts other labor-market metrics (ADP, Jolts, Unemployment rate), but the bond market, right or wrong, places a large emphasis on Non-farm payrolls and is why yields are so much higher. Also, with three recent important data points now looking stronger (Service ISM, Non-farm Payrolls, and Wages), hawks at the Fed have an excuse to make their Fed Funds projection dots higher than where the market is priced at their meeting next Wednesday. May’s Consumer Price Index is also released early next Wednesday which will have an impact.

The recent downward sloping trend of lower-lows, lower-highs of Treasury yields remains in-tact (see green channel in chart below), but the amount of hawkishness at next Wednesday’s meeting will determine if yields stay in it. At the last meeting, Jerome Powell’s sole voice created a dovish tone, but this meeting includes new projection materials (“dots”) and therefore, the rest of the Fed has more of a voice that was hawkish going into the blackout period.

2-year Yield

Source: Bloomberg