Inside Markets — Outlook for Bond Yields

The December Jobs Report due on Friday is a significant catalyst that could materially change the outlook for bond yields.  Consensus is looking for +157,000 non-farm payroll addition, down from +227,000 last month that rebounded from the hurricane-impacted October reading of +12,000.  The street is looking for an unchanged Unemployment Rate of 4.2% and a downtick in wage growth to +0.3% from +0.4% in November.  All else equal, 10-year Treasury yields would likely move through 4.71% on a non-farm payroll number north of +250,000.  Depending on the starting point, a >4.71% 10-year yield could generate a 1-4% pullback in the SPX.  A positive payroll add below +100,000 would push yields lower, but equities would also start to price in a small probability of recession, worth maybe ~1.5% in SPX terms.  For bond yields and equities, the ‘sweet spot’ on payrolls is something between 140,000-220,000.