US Treasury yields skyrocket across the whole curve on Friday, with the 2-year Treasury note yield rising over 12 basis points, while the benchmark note, the 10-year, surges six basis points following an outstanding Nonfarm Payrolls report.
Treasury yields surge after payrolls crush forecasts, lifting Dollar
At the time of writing, the US 2-year Treasury note yields 4.162%, while the 10-year yield is at 4.538%. This signals that traders are expecting the Federal Reserve (Fed) to raise interest rates, spurred by high US inflation, with the latest Consumer Price Index (CPI) report showing prices rose 3.8% in April.
The stellar May’s Nonfarm Payrolls showed the strength of the labor market with the economy adding 172,000 workers, above estimates of 85,000. Also, the Unemployment Rate steadied at 4.3% for the third consecutive month, providing ammunition for Federal Reserve hawks to discuss whether to tighten monetary policy this year, after easing policy by 75 basis points in the second half of 2025.
The Cleveland Fed President Beth Hammack—the most hawkish member of the Fed and a voter in 2026—stated that it is “reasonable to keep rates steady for now, but if recent trades persist, it might soon be necessary to act against high inflation.”
Based on Prime Terminal data, there is a 67% chance the Federal Reserve will hike rates in December, but it has fully priced in a 25 bps increase for early 2027.
The US Dollar Index (DXY), which measures the buck’s value against six currencies, jumps by 0.67% to 100.09 after bouncing from daily lows around 99.15.
In the meantime, the US financial markets’ five-year inflation expectations are at 2.48%, down from 2.53% a day ago, according to the 5-year Breakeven Inflation Rate. For 10 years, the 10-year Breakeven rate fell from 2.38% to 2.36%, suggesting markets expect medium-term inflation to decline.
Upcoming US economic events for next week
The US docket will include inflation reports for both consumer and producer prices, along with jobless claims data. Worth noting that Federal Reserve officials will be in blackout period ahead of the June 16-17 meeting, the first led by the new Fed Chair, Kevin Warsh.
