Markets shuddered on Friday after a fresh report on hiring pointed to a much stronger labor market than economists had expected, igniting concerns among investors that the Federal Reserve would need to clamp down on the economy more forcefully as it battles to bring inflation under control.
The Labor Department reported that employers added 336,000 jobs in September, far more than the 170,000 additional jobs economists had predicted.
The unease on Wall Street was most evident in the $25 trillion market for U.S. Treasuries, where yields on government bonds had already been climbing sharply. On Friday, the 10-year Treasury yield, a crucial benchmark interest rate that underpins borrowing around the world, shot up to 4.88 percent, its highest level since 2007 and its biggest one-day increase in more than a year. In late July, that yield, indicative of the cost of borrowing for the United States government, stood at 3.75 percent.
The 10-year bond is a crucial input to virtually every other long-term interest rate in the world, making it a cornerstone of the global financial system. Higher Treasury yields indicate higher costs for consumers and businesses going forward, in turn weighing on company valuations in the stock market.
“If yields keep moving higher, they’re going to create more restraint on the economy,” said Drew Matus, the chief market strategist at MetLife Investment Management.
The dollar also shot up, climbing around 0.6 percent by the time markets had opened. That’s a concern for many companies that earn their income overseas.
The reaction in the stock market was somewhat muted, however, as investors parsed through the details of the fresh report.
The S&P 500 slumped 0.5 percent in early trading Friday, adding to a persistent sell-off that began at the start of August, just as yields began their march higher. The index is on track for its fifth consecutive weekly decline.