Treasury yields rose on Friday, and the stock market was in the black after the latest employment report came in better than expected.
After three straight days of declines, the yield on three-year Treasurys was up 0.19% to 3.64%. The yield on the 10-year Treasury also rose by nearly 0.1% to 3.45% in the hours after the Bureau of Labor Statistics report was released.
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In fact, yields on every single Treasury, no matter how long the maturity, were up on Friday afternoon except for the ultra-short-term one-month Treasurys. The increases are tied to the robust jobs report.
Bond yields dropped off in the middle of the week amid continued fears that the banking system is still in major trouble, but they rose again Friday when the labor market proved more resilient than investors had thought. The perception that the Fed could hold money tighter for longer than previously thought apparently caused yields to lurch upward.
"I think a lot of that, especially the move across the curve, reflects the likelihood that the Fed is going to keep going at a high level for quite a long time, probably longer than Fed Funds Futures have been pricing," said Steven Abrahams of Amherst Pierpont Securities, according to Reuters.
The economy once again blew past expectations in April and notched 253,000 jobs, a sign that the labor market is holding up despite the Federal Reserve's rate-hiking campaign and turmoil in the banking sector. The unemployment rate also ticked down to an ultra-low 3.4%.
The report also shows that the job market isn’t suddenly collapsing because of the barrage of rate hikes, which typically weaken the economy. Some investors may be betting that the Fed can still pull off a soft landing, which is where inflation is tamped down without there being a recession.
The stock market reacted positively to Friday’s report. The Dow Jones Industrial Average soared 600 points in the wake of the news, while the S&P 500 rose by more than 2%. The tech-heavy Nasdaq composite was up 2.4% Friday afternoon.
Regional banking stocks also improved on Friday, which came after Thursday’s bloodbath. PacWest Bancorp’s stock plummeted more than 50% on Thursday alone, and First Horizon Bank’s stock dropped precipitously as well. Zions Bancorp, Comerica Bank, and Valley National Bancorp also suffered losses.
But those fortunes reversed on Friday. PacWest’s stock surged 85% on Friday, while First Horizon was up more than 5%. Zions Bancorp rose by more than 17%, and Comerica Bank jumped 16%.
The SPDR S&P Regional Banking ETF, which tracks the performance of regional banks, was up by about 6.3% on Friday afternoon.
The country’s regional banks have been under close scrutiny since the collapse of Silicon Valley Bank in early March.
First Republic Bank was the next firm to fall when it was announced Monday that the bank was being taken over by the Federal Deposit Insurance Corporation and sold to JPMorgan, an effort that officials hoped would calm markets.
While regional bank stocks rose to close out the week, Liz Young, head of investment strategy at SoFi, told CNBC she doesn't think the tumult in the banking system is over yet.
“The issue originally was that deposit flight was occurring. ... But now that the pressure is no longer necessarily deposit flight, it’s this mark to market of the securities on all their books,” Young said. “So I don’t think that this news cycle isn’t necessarily over."
The Friday employment report comes just days after the Fed announced that it was raising interest rates once again in response to inflation. The mild quarter percentage point hike came even as some urged the central bank to pause out of fear that it will cause a recession.
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The stronger April employment report bolsters the Fed’s unanimous decision to raise rates again. Still, even after the robust report, most investors think that the Fed will pause rate hikes at its next meeting in June. Powell indicated on Wednesday that pausing was a distinct possibility, the clearest sign yet that the end of tightening is in sight.
“A decision on a pause was not made today,” Powell told reporters, although he added: “There's a sense that we’re ... much closer to the end of this than the beginning.”