US government bonds and stocks fell Friday after jobs data showed blistering working conditions, boosting traders’ hopes for a rate hike by the Federal Reserve.

After closely watched U.S. jobs data showed employers added 528,000 jobs in July, U.S. Treasury yields rose, more than double the 250,000 economists had expected, to June’s It rose sharply from 398,000.

Yields on two-year government bonds, sensitive to monetary policy expectations, jumped more than 0.2 points to 3.26%. Longer-term bonds came under more subdued pressure.

Meanwhile, the S&P 500 fell 0.6% by the afternoon. This is because traders are concerned about the possibility of a hawkish rate hike by his Fed.

“It’s going to be a story of being too overzealous, the Fed was right and the market was wrong,” said Jim Paulsen, chief investment strategist at Leuthold Group. “I think it’s a dull reaction . . . in the stock and bond markets compared to the emotion generated by headline numbers.

Federal funds futures trading shows the market expects the Fed’s key rate to reach 3.64% in February 2023. The federal funds rate is currently in the range of 2.25-2.50%.

Strong employment data, which showed unemployment was also falling, pushed back fears that the world’s largest economy may be headed for recession. It could also provide impetus for the Fed to continue its rapid rate hikes after pushing costs up by 0.75pts.

“July’s unexpected growth in non-farm payrolls, along with further declines in unemployment and fresh increases in wage pressures, ridicule claims that the economy is on the brink of recession,” Michael said. Pearce, an economist at Capital Economics, added: [of the report] “It appears to support continued aggressive interest rate hikes by the Federal Reserve.”

The US dollar followed a rise in Treasury yields on Friday, with the index gaining the currency almost 1% against its six peers. The pound and euro each fell about 0.7%, while the Japanese yen fell about 1.8%.

In equities, European stocks fell as the regional Stoxx 600 fell 0.8% after Asian stocks rose with Hong Kong’s Hang Seng Index up 0.1%.

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