TREASURIES-Strong jobs report pushes 10-year yields to 14-month highs

(Updated with New York afternoon trading)

By Karen Brettell

Jan 10 (Reuters) - Longer-dated U.S. Treasury yields jumped to their highest levels since November 2023 on Friday after data showed employers added 256,000 jobs in December, far surpassing economists' expectations, while the unemployment rate fell.

Employers were expected to have added 160,000 jobs during the month. The unemployment rate dipped to 4.1%, below forecasts for 4.2%.

"This report will fuel yields even higher. The labor market is not showing any signs of weakening," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Traders are now betting the Federal Reserve will wait until at least June to reduce its policy rate. Before the monthly jobs report, traders had seen the Fed cutting as early as May with about a 50% chance of a second rate cut before the end of the year.

"The market is saying that the Fed can embark on an extended pause here, and momentum may continue to remain bearish until data starts to soften," said Angelo Manolatos, macro strategist at Wells Fargo in Charlotte.

Yields have jumped in recent months on expectations that policies by the incoming Donald Trump administration will boost growth and potentially also inflation, though there remains considerable uncertainty over what policies exactly will be implemented.

Concerns about the worsening U.S. budget deficit have also underlined the move, while Fed officials have said that they will be more cautious about further rate cuts as inflation remains above their 2% annual target.

"In December, it was mainly the hawkish Fed and less of an appetite for Treasuries generally, with investors getting more concerned about deficits," said Manolatos. "Now, so far in 2025, I think it's been a function of stronger data."

Benchmark 10-year Treasury yields reached 4.79% while 30-year yields jumped to 5.005%, both the highest since November 2023.

Interest rate-sensitive two-year yields rose to 4.39%, the highest since July 2024. The yield curve between two-year and 10-year notes flattened by around 4 basis points on the day to 38 basis points.

Bank of America economist Aditya Bhave said in a report on Friday that "after a very strong Dec jobs report, we think the cutting cycle is over. Inflation is stuck above target, with upside risks."

Chicago Fed President Austan Goolsbee said on Friday that there is no evidence the U.S. economy is overheating again despite a blowout December jobs report, adding he still expects it will be appropriate to lower interest rates further.

Economic releases next week will include producer and consumer price inflation data for December.

(Reporting By Karen Brettell; Additional reporting by Stephen Culp; Editing by Christina Fincher, Nick Zieminski and Diane Craft)