This particular data concerns the 5-year note, where yields have more than doubled since July, with the move accelerating since the election.
"Real money always wins," says Seaport Global's Tom di Galoma. "Speculators tend to get taken out. We've seen this occur several times in the last 10 to 15 years, where everybody thinks rates are too low.”
The headline jobs number was a miss, but what bond investors might really be focusing on was 2.9% Y/Y wage growth in December - that's up from 2.5% in November and the speediest since June 2009.
"We're basically at full employment," Cleveland Fed hawk Loretta Mester told Fox following the report.
The economy has "hit the full wall" of full employment, says Bank of Tokyo-Mitsubishi economist Chris Rupkey. "We are really going to see wages really start to jump." He sees no reason why the Fed wouldn't stay with its plan to hike 2-3 times this year.
The 10-year Treasury yield is up five basis points to 2.4%, and short-term rate futures are pricing in about two 25 point rate hikes this year.
SocGen suspects investors have not forgotten about a powerful bond rally in each January of the past three years, each with its own rationale ("the 2H13 taper tantrum was reversed as the economy started to run out of steam; early 2015 saw the front running of the ECB’s QE; early 2016 saw a panic reaction to large capital outflows in China").
Still, firm says it does not expect a repeat:
The macro environment differs sharply. Global growth peaked in autumn 2013, and from there slowed down consistently into mid-2016. But it has now turned. Global inflation has also picked up, with U.S. wages, oil prices and the Chinese PPI all pointing north. Economic momentum into the turn of the year, especially in the DM world, is such that the global economy is likely to prove more resilient to shocks.
"The cyclical improvement, along with the ongoing reflation effort (U.S. fiscal stimulus in the pipe, ECB, BoE and BoJ remain very accommodative) will push market participants to reduce unprecedented exposure to the interest rate risk.
The 10-year Treasury yield is higher by seven basis points to 2.54% following the Fed rate hike and expectations for three boosts next year (up from two). That's the highest level since Sept. 2014.
That's a big move, but the real action is at the short end, where the two-year yield has moved up a whopping 10 basis points to 1.26%. As recently as the July 4 holiday, the two-year yield was about half of today's level.
We'd like to check Fed Funds futures to see what they're pricing in, but things are so busy at the CME, we can't get onto the website.
The yield on the 10-year Treasury note is above 2.5% for the first time since October 2014, as investors eye a key Federal Reserve meeting which begins tomorrow. The next notable yield is 3%, last hit in 2013.
Meanwhile, U.S. stocks are at all-time highs, with the Dow in striking distance of 20,000, but futures are sliding lower to start the week.
Will expectations of a Fed rate hike put a dent in the Trump rally?
Trades that performed best in the three weeks since Donald Trump's election victory are taking a breather, with the dollar and U.S. bond yields falling from recent peaks and equity index futures signaling stocks will slip from all-time highs.
The dollar could face further resistance in the week ahead given potentially risk-laden events such as the midweek OPEC meeting and Italy's Dec. 4 referendum on constitutional reforms.
Add Fidelity Ford O'Neil's voice to that of Van Hoisington questioning whether the post-election surge in interest rates makes sense.
"It is all based on speculation,” he tells Bloomberg. "The market has glommed on to the good news about growth, but not how challenging it would be to enact such a program or negatives like restrictions on trade.”
Ford is among the managers of the Fidelity Total Bond Fund (MUTF:FTBFX).
Three things could undermine the recent run-up in yields: the Fed's commitment to just a very gradual boost to short-term rates, the traditional aversion to budget deficits by a Republican Congress, and overseas buyers who may take advantage of lower prices to scoop up Treasurys.
Speaking to CNBC this morning, fund manager Stanley Druckenmiller - who had been pessimistic about the U.S. economy, said that he is now "quite, quite optimistic" on the U.S. economy following the election of President-elect Donald Trump. "It's as hopeful as I've been in a long time."
"I sold all my gold on the night of the election." Why? “All the reasons I owned it for the last couple of years seem to be ending", namely, expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasurys - and into the dollar.
Druckenmiller said he now has a “large bet on economic growth. I’m short bonds, Bunds, Italian bonds, U.S. bonds.” The trades reflect his expectation of higher deficits and stronger growth leading to another surge in debt.
Druck said he is “hopeful” on the Trump administration and political climate. “I would not be surprised if we’re looking at the absolute peak of divisiveness.”
Standard & Poor's has given the all-clear to America's credit rating, affirming it at 'AA+' with a stable outlook.
"We assume the longstanding institutional strengths and robust checks and balances of the U.S. will support policy execution in a Trump administration, despite the president-elect's lack of experience in public office," the ratings agency said.
Moody's announced in September the election wouldn't impact its 'AAA' rating for the U.S.