US Treasury Yields Surpass 4%... "Market Reflects Additional Rate Hikes"

US June Employment Data Stronger Than Expected

[Image source=Yonhap News]

The U.S. employment market in June showed stronger-than-expected resilience, pushing the 10-year U.S. Treasury yield above 4% for the first time since March. The market is now pricing in a July interest rate hike as a given, with growing possibilities of further increases.

Kim Ilhyuk, a researcher at KB Securities, stated, "The rise in long-term interest rates has triggered a correction in the stock market," adding, "The 10-year U.S. Treasury yield rose by 8.6 basis points from the previous day to 4.03%." This level is close to the yearly high of 4.09%.

The increase in long-term yields is attributed to strong employment data. Private sector employment in June increased by 497,000 compared to the previous month. This figure is more than double the market expectation of 228,000 and shows a much stronger expansion compared to May's 267,000.

Since changing its methodology in August last year, the ADP private employment figures have tended to report about 40,000 fewer jobs on average compared to the Bureau of Labor Statistics (BLS) nonfarm private payrolls over the past 10 months. During this period, ADP reported larger increases than BLS in only three months.

Considering this, Kim said, "The BLS nonfarm private payroll number, which will be released tonight Korean time, is likely to exceed ADP's 497,000," and predicted, "June's new employment figures are expected to significantly surpass market expectations."

Weekly initial jobless claims also remained at low levels. Last week, initial jobless claims recorded 248,000. Although this is an increase from the previous week's 236,000, it still stayed below 250,000 for the second consecutive week. Continuing claims, which better reflect employment market trends, have been declining for 11 consecutive weeks.

Kim analyzed, "The decrease in continuing jobless claims means that people receiving unemployment benefits are finding jobs," and added, "This indicates that the employment market, which had stalled since the end of last year, continues to expand." He explained that the conclusion of layoffs in the tech sector, which had previously dampened the employment market during this period, played a significant role.

The number of job openings in May was 9.824 million, slightly below the market expectation of 9.935 million. Kim evaluated, "The figure still remains close to 10 million, and the turnover rate, which reflects workers' confidence, has rebounded beyond its recent downward trend," concluding, "This increase shows that the employment market is not weakening easily."

Meanwhile, in the U.S. Secured Overnight Financing Rate (SOFR) market, the peak forecast for the benchmark interest rate rose further to 5.63%. The year-end forecast for the benchmark rate also increased to 4.40%.

In the federal funds futures market, a July rate hike is priced in with a 91.8% probability. The probability of an additional rate hike in September rose from 18.1% the previous day to 26.4%, and the chance that the benchmark rate will be at least 50 basis points higher than the current level by November increased from 35.9% to 43.3%.

This content was produced with the assistance of AI translation services.