The bond market stays in focus with US jobs report eyed

In the past week, Treasuries have picked up from where they left off in the late stages of last year. 10-year yields in the US are still on the rise and we’re now closing in on the highs seen in 2024 near 4.70%. The actual high last year was around 4.74% but that may not offer too much of an obstacle if sellers continue to pile in and take out the 4.70% mark this week. Are we on war path back towards 5%?

I wouldn’t rule it out, in all honesty. At some point last year, it would be unthinkable considering the Fed’s rate outlook. But all it takes is one election result and how the tables have turned.

As Adam pointed out here, addressing the deficit doesn’t seem to be a priority for Trump. And understandably so, as it is an issue that no president has a handle on dealing with it. Ultimately, it will just be a case of kicking the can down the road as always.

If yields are headed back to 5%, that’s a major risk that broader markets really need to consider.

The dollar is already in a strong position to start the new year and could gather more of a tailwind as such. Right now, the narrative is largely driven by Trump’s strong policy hand. So, therein lies the risk for markets as we await his inauguration later this month.

But if yields are to take flight again from hereon, I fear that it’s going to be a painful start to the year for risk trades. US indices are already looking a little shaky after yesterday’s data. Now, the focus turns towards the US jobs report on Friday instead.

If labour market conditions are still hot and reaffirms more cause for the Fed to pause, it could be the trigger that gets the ball rolling in the bond market for yields to surge again. The upcoming showdown on Friday is going to be a big, big one to watch.

This article was written by Justin Low at www.forexlive.com.