US Treasury yields climbed on Friday after stronger-than-expected October employment data reinforced expectations that the Federal Reserve will raise interest rates at its December policy meeting.
The US economy added 165,000 nonfarm payroll jobs in October, significantly exceeding economists’ forecasts, while the unemployment rate declined to 4.1% from 4.2% in September, according to the Bureau of Labor Statistics (BLS).
- The US economy added 165,000 jobs in October, exceeding economists’ expectations of 59,000 to 65,000, while unemployment declined to 4.1%.
- Treasury yields rose after the report, with the benchmark 10-year yield approaching 4.87% and the two-year yield reaching approximately 4.52%.
- Markets increased the probability of a 25-basis-point Federal Reserve rate hike in December to around 76%, reflecting concerns that stronger employment could complicate efforts to reduce inflation.
The report indicated a rebound in hiring following several months of relatively weak employment growth.
Investors responded by increasing bets on another Federal Reserve rate increase, pushing Treasury yields higher as policymakers continue to address persistent inflationary pressures.
The employment figures also arrived amid significant financial market volatility following the US midterm elections and a sharp sell-off in technology stocks.
October jobs report exceeds expectations
October’s increase of 165,000 jobs substantially exceeded market forecasts.
Economists surveyed by Dow Jones had expected approximately 59,000 new positions, while other forecasts pointed to a gain of around 65,000. The unemployment rate fell to 4.1%, compared with expectations that it would remain unchanged at 4.2%.
The Labor Department also revised employment figures for the preceding two months.
August payroll growth was increased by 53,000 to 186,000, while September’s initially reported gain of 29,000 was revised upward to 60,000. Together, the revisions added 84,000 jobs to previously published employment estimates.
The revised figures indicate that the summer slowdown was less pronounced than initially reported.
The number of people participating in the labour force increased by 421,000 in October, while the labour force participation rate edged up to 61.9%. The employment-to-population ratio also increased slightly to 59.3%.
Among workers aged 25 to 54, the employment rate reached 83.7%, remaining close to its recent cyclical peak of approximately 84%.
The improvement in employment and participation suggests that the labour market retained momentum despite elevated borrowing costs and wider economic uncertainty.
Professional services and healthcare lead hiring
Employment gains were concentrated in several major sectors, including professional and business services, healthcare, transportation and manufacturing.
According to the BLS, the largest increases included:
| Sector | Jobs added in October |
|---|---|
| Professional and business services | 70,000 |
| Healthcare | 42,000 |
| Transportation and warehousing | 25,000 |
| Manufacturing | 19,000 |
Professional and business services recorded particularly strong hiring, with gains in technical, administrative and management-related activities.
Healthcare employment increased across hospitals, home healthcare services and outpatient facilities. Transportation and warehousing benefited from additional hiring among couriers, delivery businesses and airlines.
Manufacturing added 19,000 positions, extending a recovery that has produced approximately 101,000 new manufacturing jobs since December 2025. Other parts of the economy recorded weaker employment trends.
Leisure and hospitality employment declined by approximately 13,000 positions, according to an analysis by RSM, while construction and information services also experienced modest job losses.
The overall employment increase nevertheless exceeded the average monthly gain of 48,000 recorded during the preceding 12 months.
Wage growth strengthens but purchasing power remains under pressure
Average hourly earnings increased 0.4% in October compared with September, the strongest monthly rise since January. The increase lifted average hourly earnings to $38.00. Wages were 3.1% higher than in October 2025.
Although stronger earnings provide additional support for household spending, annual wage growth remains below the pace of consumer price inflation.
Consequently, many workers continue to experience pressure on their inflation-adjusted purchasing power.
The combination of stronger employment and persistent inflation presents a challenge for the Federal Reserve.
Higher employment generally supports consumer demand, while stronger wage growth can influence the outlook for spending and prices.
However, Joe Brusuelas, chief economist at RSM US, said the latest wage figures did not suggest that labour costs were becoming a major independent source of inflation.
Brusuelas characterised the employment expansion as sustainable, with hiring improving after the summer slowdown. RSM calculated that monthly job creation averaged approximately 137,000 over the latest three months and 83,000 over six months.
The longer-term average suggests that underlying hiring remains more moderate than October’s headline figure alone might indicate.
Treasury yields climb after stronger employment data
US government bond yields increased immediately after the employment report as traders reassessed the outlook for Federal Reserve interest rates.
The benchmark 10-year Treasury yield rose by more than 3 basis points to approximately 4.868%.
The two-year Treasury yield, which is particularly sensitive to expectations for monetary policy, increased by nearly 5 basis points to around 4.524%.
Meanwhile, the 30-year Treasury yield advanced by more than 2 basis points to approximately 5.275%.
| US Treasury maturity | Yield following the report |
|---|---|
| Two-year | 4.524% |
| Ten-year | 4.868% |
| Thirty-year | 5.275% |
These were intraday levels recorded following the release, with yields fluctuating as markets continued trading. One basis point equals 0.01 percentage points. Bond yields typically move in the opposite direction to prices.
The rise in yields reflected expectations that the Federal Reserve may need to maintain tighter monetary conditions to contain inflation.
December Federal Reserve rate hike becomes more likely
The stronger employment figures increased market expectations of another interest rate increase at the Federal Reserve’s next meeting on 8–9 December.
According to CME FedWatch data cited after the report, futures markets were pricing in approximately a 76% to 77% probability of a quarter-percentage-point increase.
That compared with a probability of roughly two-thirds before the release.
The Federal Reserve’s target interest rate currently stands at 3.75% to 4.00%, following a 25-basis-point increase in September. Policymakers maintained that range at their October meeting. A further quarter-point increase in December would lift the target range to 4.00% to 4.25%.
Christopher S. Rupkey, chief economist at FWDBONDS, said the strength of the latest employment figures would make the central bank’s efforts to bring inflation under control more difficult. He argued that the rebound in hiring increased the likelihood of additional monetary tightening.
Angelo Kourkafas, senior global strategist at Edward Jones, also highlighted the combination of stronger payroll growth, positive revisions, lower unemployment and rising wages.
Boston College economist Brian Bethune expects a rate increase in December, with another potential move in early 2027.
The employment data gives policymakers additional confidence in labour market resilience, potentially allowing them to concentrate more heavily on inflation risks.
However, futures-market probabilities remain subject to change as new economic data and Federal Reserve communications become available.
Employment growth remains moderate by historical standards
Despite October’s stronger-than-expected figures, the US labour market has not returned to the pace of hiring recorded during the recovery from the COVID-19 pandemic.
Employers have added an average of approximately 86,000 jobs per month so far in 2026. That represents an improvement from the monthly average of 9,700 jobs recorded in 2025, the weakest annual hiring performance outside a recession since 2002.
However, it remains below the average of 166,000 jobs per month recorded during 2023 and 2024.
Employment growth was considerably stronger during the post-pandemic recovery in 2021 and 2022, when monthly gains averaged approximately 491,000.
Economists have described the current labour market as one in which employers are generally reluctant to dismiss existing staff but remain cautious about expanding their workforces. This environment can create difficulties for younger workers entering employment and people seeking jobs after redundancy.
Demographic changes are also affecting labour market conditions. Retirements among older workers and tighter immigration policies have reduced the number of new jobs required to maintain a stable unemployment rate.
The Yale Budget Lab has estimated that the monthly employment increase needed to prevent unemployment from rising has fallen substantially compared with previous years.
US midterm elections and AI sell-off add to market volatility
The employment report arrived during a turbulent week for US financial markets.
Democratic victories in the midterm elections gave the party control of both chambers of Congress, prompting investors to reassess the outlook for artificial intelligence investment and data centre construction.
Several newly elected Democratic politicians have opposed rapid data centre development, raising concerns that additional restrictions could slow investment in AI infrastructure.
Technology stocks suffered substantial losses on Thursday. The Nasdaq, S&P 500 and Russell 2000 recorded some of their sharpest daily declines since April 2025.
The so-called Magnificent Seven technology companies collectively lost more than $1 trillion in market capitalisation during the sell-off.
Investors were also questioning whether the substantial spending commitments made by technology businesses would generate sufficient returns.
Despite this uncertainty, US economic growth has remained comparatively resilient.
Gross domestic product expanded at an annualised rate of 3.4% during the third quarter, supported by consumer spending and investment in AI-related infrastructure.
The economy has continued growing despite higher tariffs, elevated interest rates and the economic consequences of the conflict with Iran.
However, gasoline prices above $4 a gallon and persistent inflation have continued to weigh on household budgets.
Economists expect continued growth and further monetary tightening
RSM expects the stronger employment data to support a 25-basis-point Federal Reserve rate increase in December. Brusuelas estimates that US economic growth could finish 2026 at approximately 2.5%.
For 2027, RSM forecasts growth in a range of 2.2% to 2.5%, while assigning a 15% probability to a recession over the next 12 months.
The consultancy expects the economy to remain in a mid-cycle expansion, supported by continued hiring and business investment.
Nevertheless, October’s strong jobs report does not eliminate broader concerns about household purchasing power, the uneven distribution of economic gains or uncertainty surrounding AI investment.
The data suggests that the US economy entered the final quarter of 2026 with greater labour market momentum than economists had anticipated.
For financial markets, the immediate implication is a stronger expectation of higher interest rates, with the Federal Reserve likely to weigh resilient employment against continued inflationary pressure at its December meeting.
