U.S. Treasury yields rose sharply across the curve on Friday, with the 2-year Treasury yield rising more than 12 basis points while the benchmark 10-year bond rose six basis points following the stellar Nonfarm Payrolls report.
Treasury yields soar after wage forecasts collapse, pushing the dollar higher
At the time of writing, the US 2-year Treasury yield is 4.162% and the 10-year US Treasury bond yield is 4.538%. This signals that investors expect the Federal Reserve (Fed) to raise interest rates on the back of high US inflation, and the latest Consumer Price Index (CPI) report shows prices rose 3.8% in April.
Strong May nonfarm payrolls data showed strength in the labor market, with the economy adding 172,000 workers, above estimates of 85,000. Additionally, the unemployment rate remained at 4.3% for a third straight month, giving Federal Reserve hawks arguments to consider whether to tighten monetary policy this year, after easing policy by 75 basis points in the second half of 2025.
Cleveland Fed President Beth Hammack – the Fed’s most hawkish member and a 2026 voter – said that “it makes sense to keep interest rates steady for now, but if recent activity continues, it may soon become necessary to counter high inflation.”
Prime Terminal data shows the Federal Reserve is 67% likely to raise interest rates in December, but has fully priced in a 25-basis-point hike in early 2027.
The U.S. Dollar Index (DXY), which measures the dollar’s value against six currencies, jumps 0.67% to 100.09 after rebounding from intraday lows around 99.15.
Meanwhile, under the 5-year breakeven inflation rate, US financial markets’ five-year inflation expectations are 2.48%, up from 2.53% a day ago. Over 10 years, the 10-year yield has fallen from 2.38% to 2.36%, suggesting that markets expect inflation to decline over the medium term.
Upcoming US economic events for next week
The US document will include reports on inflation, both in terms of consumer prices and producer prices, along with data on the number of unemployed people. Notably, Federal Reserve officials will take a break from deliberations before their June 16-17 meeting, the first under up-to-date Fed Chairman Kevin Warsh.
