TREASURY WRAP: T-NOTE (Z6) FUTURES SETTLE 7 TICKS LOWER AT 107-03+

Yields rise as tech stocks rebound and US sees stellar jobs report. At settlement, 2-year +5.1bps at 4.522%, 3-year +4.5bps at 4.586%, 5-year +3.5bps at 4.648%, 7-year +3.0bps at 4.742%, 10-year +1.6bps at 4.859%, 20-year +0.8bps at 5.290%, 30-year +0.1bps at 5.260%.

THE DAY: The yield curve flattened on Friday, with front-end yields rising while the long end was little changed. There were two primary drivers of price action: the stellar US jobs report and the rebound in US tech/AI stocks.

The recent stock/AI rout had prompted an FTQ bid in T-notes, pushing yields lower as participants sought safety in haven assets amid equity market volatility. However, as stocks rebounded on Friday, albeit with some way still to go to recover recent losses, some of that haven demand was unwound. T-notes did find some support after Bloomberg reported that Microsoft (MSFT) is winding down an arrangement to rent AI computing capacity from Oracle (ORCL), as part of a broader reassessment of billions of dollars in cloud partnerships.

Meanwhile, the US jobs report was strong. The US economy added 165k jobs in October, well above the 65k forecast and the upwardly revised 60k prior, while the previous two months were revised higher by a net 84k, helping offset some of the weakness seen in recent labour market reports. The unemployment rate also improved, dropping to 4.1% from 4.2%, while the participation rate ticked higher.

The NFP report and rebound in stocks saw hawkish Fed bets return, with participants now pricing a c. 77% probability of a December hike, up from 64% earlier in the session, albeit still below the near 90% seen before the recent equity weakness.

Fed speak saw Williams highlight the resilient economy and inflation remaining too high for too long, while stating that it is an appropriate time to gather more information. Musalem noted that people remain concerned about inflation, while Daly described the jobs report as good news. Daly stated that policy will need to be tightened further, although more information is required on how much additional tightening is needed and when. She is prepared to raise rates if warranted and noted that rates are likely somewhere between slightly restrictive and neutral. She added that policy is not as restrictive as it needs to be. Daly's comments prompted some additional upside in 2-year yields, albeit only around 2-3bps.

Looking ahead, Tuesday's CPI report will be key in shaping Fed expectations, given policymakers' heightened focus on the inflation side of their mandate. Friday's robust jobs report gives the Fed greater room to prioritise returning inflation to target, with immediate concerns surrounding labour market weakness easing.

• US to sell USD 58bln of 3-year notes on November 9th, USD 42bln of 10-year notes on November 10th and USD 25bln of 30-year bonds on November 12th.

• US to sell USD 100bln of 6-wk bills, USD 95bln of 13-wk bills and USD 82bln of 26-wk bills on November 9th; all to settle on November 12th

• Fed Hike Pricing via CME FedWatch: Dec 19.2bps (prev. 16.9bps), Mar 33.9bps (prev. 29.1bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 111bln (prev. USD 115bln) on November 5th
• SOFR at 3.92% (prev. 3.94%), volumes at USD 3.256tln (prev. USD 3.207tln) on November 5th * NY Fed RRP op demand at 0.15bln (prev. 0.12bln) across 1 counterparty (prev. 1) on November 6th