U.S. October nonfarm payrolls far exceed expectations! U.S. Treasury yields rise across the board as the market bets on a Fed rate hike in December.

U.S. October nonfarm payrolls came in unexpectedly strong, pushing Treasury prices lower on Friday and yields higher across the board. With job gains far exceeding market expectations and the unemployment rate falling, traders further increased bets on a Federal Reserve rate hike in December, and expectations that monetary policy will continue to tighten rose accordingly. The data showed that U.S. nonfarm payrolls increased by 165,000 in October, far exceeding the market expectation of 65,000, with the actual increase reaching about 2.5 times the expected level. Meanwhile, the unemployment rate fell to 4.1%, and employment data for previous months were also revised upward, further highlighting the resilience of the U.S. labor market. On wages, the year-on-year growth rate of U.S. wages over the past 12 months accelerated to 3.1%, indicating that the labor market has not only maintained relatively strong hiring demand but also seen a pickup in wage growth. After the strong employment data were released, U.S. Treasuries were sold off, and yields on Treasuries of all maturities generally moved higher. Among them, the yield on two-year U.S. Treasuries, which is most sensitive to the outlook for the Fed's interest rate policy, rose by as much as 7 basis points to 4.54%; the benchmark 10-year U.S. Treasury yield rose by 4 basis points to 4.87%. Because bond prices and yields move inversely, the rise in yields reflects that investors are readjusting their expectations for the future path of interest rates. After the employment data were released, the market continued to bet that the Fed will further tighten monetary policy. Interest rate market pricing showed that traders currently expect about a 70% probability that the Fed will raise rates by 25 basis points at its December policy meeting. At the same time, the market expects that by September 2027, the Fed will have raised rates by at least another 40 basis points in cumulative terms. This nonfarm payrolls report reinforced the market's judgment that the U.S. economy remains resilient. The significantly better-than-expected increase in payrolls, the decline in the unemployment rate, and the rebound in wage growth mean that the labor market has not yet shown obvious signs of weakness, and may also keep the Fed vigilant in controlling inflation. For the Fed, strong job growth, while conducive to economic expansion, may also support household consumption demand and make inflationary pressure more difficult to dissipate quickly. In particular, against the backdrop of rising energy prices already putting pressure on inflation, continued labor market strength may further strengthen policymakers' rationale for maintaining a tightening stance. The reaction in the U.S. Treasury market also shows that investors are pricing higher policy rate expectations into bond prices. Short-term Treasury yields rose more than long-term Treasury yields, highlighting the market's sensitivity to the Fed's near-term policy adjustments. Next, investors will continue to focus on U.S. inflation data and Fed officials' policy remarks to judge whether expectations for a December rate hike will rise further and how long this monetary tightening cycle may last.