U.S. unemployment claims fell to 194,000 last week, the lowest in three months, cementing expectations that the Federal Reserve will keep rates elevated through year-end.
The decline sent the two-year Treasury yield up six basis points to 5.01 percent as investors repriced the path of monetary policy. Futures markets adjusted sharply, now pricing a 78 percent chance the Fed pauses at its December 12-13 meeting, up from 65 percent before the data release.
The Fed has consistently flagged labor market strength as a drag on disinflation. Persistent wage growth remains the central bank's chief concern in a 2 percent inflation target that has proven elusive. Strong employment data rules out near-term cuts and locks in an extended period of restrictive policy—a reality bond markets are pricing in real time.
The yield curve steepened modestly as the 10-year Treasury climbed four basis points to 4.58 percent. Duration risk has intensified: portfolios leveraged to falling rates face headwinds if the Fed stays paused well into 2025. Investment-grade credit spreads remain compressed despite elevated rates, a signal that default risk is perceived as low in a still-solid economy. That calculus could shift if borrowing costs persist and corporate margins contract.
Equity markets delivered a mixed signal. The Nasdaq rose 1.1 percent and the S&P 500 gained 0.6 percent, though large-cap names showed divergent pressure. Technology stocks like Tesla and NVDA rallied on growth appetite, while Amazon and Alphabet saw selective profit-taking.
