NEW YORK — A potentially big downside to the big jump in the number of U.S. jobs created last month is a super-size jump in interest rates.
After the government reported Friday that 204,000 new jobs were created in October, blowing away the estimate of 120,000, bond prices fell sharply and yields soared as investors bet that the Federal Reserve might start dialing back on its market-friendly bond-buying program earlier than anticipated.
The bond-market sell-off drove up the yield on the benchmark 10-year Treasury bond to 2.75% Friday, from 2.61% Thursday. The sharp spike marked the highest yield since mid-September. Still, the 10-year note is still nearly a quarter-percentage-point below its 2013 peak yield of 2.98% — and below the psychologically important 3% level.
And while stocks shrugged off the rise in rates Friday, with the Dow Jones industrial average surging 167 points to a record closing high of 15,761.68, investors are well aware the market has suffered three sell-offs of around 5% this year due to rate spikes driven by fears the Fed would start reducing its stimulus.
Keep an eye on the 10-year Treasury note, says Paul Hickey, co-founder of Bespoke Investment Group. “As long as rates don’t spike over 3%, we don’t expect it to have much of an impact on the overall stock market,” he says.
Bulls argue that the stock market can handle rising rates if it is due to a stronger economy.
See original article here.