2023.02.0319:19:00UTC+00Treasuries Move Sharply Lower Following Stronger Than Expected Jobs Data

After ending the previous session roughly flat, treasuries showed a substantial move to the downside during trading on Friday.

Bond prices came under pressure in early trading and remained sharply lower throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 13.6 basis points to 3.532 percent.

The steep drop by treasuries came as much stronger than expected jobs data led to renewed concerns about the outlook for interest rates.

The Labor Department's closely watched monthly jobs report said non-farm payroll employment soared by 517,000 jobs in January after surging by an upwardly revised 260,000 jobs in December.

Economists had expected employment to increase by 185,000 jobs compared to the addition of 223,000 jobs originally reported for the previous month.

The report also said the unemployment rate edged down to 3.4 percent in January from 3.5 percent in December. The dip surprised economists, who had expected the unemployment rate to inch up to 3.6 percent.

With the unexpected decrease, the unemployment rate dropped to its lowest level since hitting a matching rate in May 1969.

While the report points to continued strength in the labor market, the data has led to concerns the Federal Reserve will raise interest rates higher than currently anticipated.

"The surprisingly, strong across-the-board January employment report shows that labor demand remains too hot for the economy's own good and will embolden the Fed to raise rates more not less," said Nationwide Chief Economist Kathy Bostjancic.

"We had been looking for a peak in the Fed funds target range of 5% - 5.25%, but the risks are now that they might need to do more," she added. "At the minimum, this should dampen the market's expectation for rate cuts in the second half of the year."

Further reducing the safe-haven appeal of bonds, the Institute for Supply Management released a report showing service sector activity rebounded by much more than expected in the month of January.

The ISM said its services PMI jumped to 55.2 in January from a revised 49.2 in December, with a reading above 50 indicating growth. Economists had expected the index to inch up to 50.4 from the 49.6 originally reported for the previous month.

Following a number of key economic events this past week, the economic calendar for next week is relatively quiet.

Traders are still likely to keep an eye on reports on the U.S. trade deficit, initial jobless claims and consumer sentiment.