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Yields Jump Following Strong Payrolls Report

Strong January payroll data helped push yields markedly higher this week, as an increase in hourly earnings may finally indicate the arrival of widely expected wage inflation.  While bond yields were already higher this week, Friday's job data lit a fire under rates, pushing the yield on the ten-year note to its highest level since early-2014.  The jobs report indicated that 200,000 jobs were added in December, ahead of the consensus expectation of 180,000.  However, the component of the report which garnered the most attention was December's 0.3% increase in average hourly earnings, which followed an upwardly revised 0.4% increase in November. 

Longer-term yields are driven significantly by inflation expectations, and this data stoked fears of even higher inflation readings.  Shorter-term yields are driven more directly by the Fed funds rate - the strength seen in this labor report pushed short-term rates higher as traders speculated that the Fed may need to raise rates more aggressively.

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