WASHINGTON — New claims for unemployment benefits dropped to 187,000 last week, approaching a 57-year low and signaling a labor market that has barely yielded to the Federal Reserve's rate hikes.
The tight labor market immediately repressed Treasury valuations. The two-year yield rose 5 basis points to 5.08 percent, while the 10-year climbed 3 basis points to 4.92 percent, steepening the curve as traders extended their estimates for when the Fed will cut rates.
The four-week moving average of claims, a less volatile proxy, hit 191,500—its lowest level since 1969. That durability matters: persistent job growth typically precedes wage acceleration, which the Fed still views as a vector for inflation.
Bond investors read the data as evidence the Fed will keep policy restrictive longer than the market had priced even two weeks ago. The central bank has said it needs "sufficiently restrictive" policy to anchor inflation at its 2 percent target. A labor market that shows no signs of cracking gives it room to hold without risking immediate recession.
The dollar gained 0.3 percent to 105.1, reflecting the relative strength of U.S. growth and expectations of higher U.S. rates versus other developed economies.
The November nonfarm payrolls report and October CPI release will reshape rate expectations further. Until then, bond markets are behaving as though the Fed has more work to do.
