U.S. Treasuries fall as blowout payrolls lift yields across the curve

A powerful global sovereign bond rally that had pushed benchmark borrowing costs across Europe and Japan to multi-month lows came to a halt on Friday, as a blockbuster U.S. jobs report drove Treasury yields higher and forced European paper into a swift intraday reversal.

The U.S. Treasury market pivoted sharply from morning safe-haven gains after the Labor Department reported that non-farm payrolls jumped by 165,000 in October, blowing past economists’ forecasts of 65,000 and accelerating from an upwardly revised 60,000 in September.

Prior to the U.S. data, government debt had surged across international dealing rooms, powered by an aggressive flight to quality following a brutal tech-led equity liquidation on Wall Street and a steep plunge in Tokyo.

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The employment landscape showed broader underlying strength as the national jobless rate edged down to 4.1%, improving against expectations that it would hold steady at 4.2%.

The hiring acceleration immediately spurred dealing desks to reprice near-term Federal Reserve tightening odds, igniting a broad-based sell-off that lifted Treasury borrowing costs across all maturities.

The policy-sensitive two-year Treasury yield, which closely tracks short-term interest rate expectations, climbed 4.6 basis points from 4.501% to trade at 4.547%.

Along the belly of the curve, the benchmark 10-year Treasury yield rose 4.5 basis points, advancing from 4.858% to 4.903% as duration buyers retreated.

At the long end, the 30-year Treasury yield climbed 2.6 basis points, rising from 5.280% to 5.306%.

German bunds reverse course

The transatlantic selling pressure rippled immediately into European bourses, catching fixed-income desks that had spent the morning driving continental yields to their lowest levels of the autumn.

The benchmark German 10-year Bund yield, which had dropped to 3.21% in morning trade - putting it on course for its fourth consecutive weekly decline and its longest winning streak since February- reversed course to tick up to 3.254%.

At the short end of the European curve, the policy-sensitive two-year German yield similarly climbed out of its autumn trough of 2.935%, rising to 2.965% as traders trimmed aggressive duration positions.

Wall street tech rout and Nikkei’s plunge catalyze JGB rally

The global safe-haven rotation was initiated overnight by a brutal sell-off on Wall Street that spilled directly into Asian dealing rooms on Friday.

Wall Street’s tech-heavy Nasdaq Composite plunged 5.52% on Thursday to close at 24,315.00 points, confirming a technical correction by finishing more than 10% below its October 6 record-high close in its worst single-day performance in 19 months.

Broad selling dragged the S&P 500 down 4.36% to 7,353.73 points and sent the Dow Jones Industrial Average down 3.44% to 51,523.06 points.

The benchmark 10-year JGB yield sank to 2.627%, its lowest level since June, logging its steepest single-day decline since July.

At the short end, the two-year JGB yield tumbled to 1.731%, touching its lowest mark since September and similarly notching its sharpest drop since July as traders rushed to cover duration shorts.

"The driving forces behind the bond rallies are not just limited to Japan and Europe. It is a flight to safety after the significant sell-off in AI hyperscalers and data centers," said Louis Gargour, CIO at Market Securities Wealth.

 "The European Central Bank has pretty much done raising rates and is most likely to have nipped inflation in the bud therefore causing yield curves to flatten."

Democratic sweep ignites scrutiny over AI

The catalyst behind the Wall Street rout was a sudden, dark reassessment of the artificial intelligence boom following Tuesday’s decisive Democratic sweep of the U.S. Congress.

Chipmakers and infrastructure providers bore the brunt of the liquidation after investors recognized that an opposition-controlled House and Senate significantly increases the odds of aggressive federal antitrust enforcement and tougher environmental oversight.

Market anxiety was heightened by key Democratic election wins across several battleground states where local opposition to power-hungry, water-intensive data centers has mounted rapidly over the past year.