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U.S. Treasury yields ahead of key jobs report

The 10-year U.S. Treasury yield topped 4% on Friday after a surprisingly strong jobs report that showed continued strength in the economy, but raised questions on when the Federal Reserve can cut interest rates.

The yield on the 10-year Treasury was last shot up by 14 basis points to 4%. The 2-year Treasury yield was last up by 19 basis points at 4.382%.

Yields and prices have an inverted relationship and one basis point equals 0.01%.

Wall Street digested a hot January jobs report. Nonfarm payrolls expanded by 353,000 last month, much stronger than the payrolls increase of 185,000 anticipated by economists polled by Dow Jones. The unemployment rate was at 3.7%, compared to the 3.8% consensus estimate.

Wage growth data in the report pointed to continued inflationary pressures. Average hourly earnings rose 0.6%, which was double what economists expected. On a yearly basis, wages spiked 4.5%, more than the 4.1% consensus estimate.

A stronger-than-expected jobs report adds to the likelihood that interest rate cuts will not come as soon as investors had hoped, especially after Fed Chair Jerome Powell this week noted that a March rate cut is unlikely.

“The Fed threw some cold water on the idea of a March rate cut less than 48 hours ago, and today’s surprisingly strong jobs report won’t dry things off,” wrote Chris Larkin, managing director at E-Trade from Morgan Stanley.

“It’s definitely not the type of data the Fed had in mind when they said they wanted to see more evidence that inflationary pressures were under control. If similarly hot numbers continue to roll in over the next couple of months, investors may become less confident about how soon the Fed will cut rates, and by how much,” Larkin added.

— CNBC’s Jeff Cox contributed to this report.

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