The US created more jobs than expected in December, putting renewed momentum behind Treasury yields and the dollar. According to data just released by the Bureau of Labor Statistics, 256,000 jobs were added in the month—solidly topping the 165,000-position consensus forecast—and the unemployment rate held at 4.1 percent, suggesting that underlying labour market conditions remained strong. November’s number was revised down to 212,000 from the 227,000 previously estimated, and average hourly earnings climbed 0.3 percent month-over-month, meeting expectations in slowing slightly from the 0.4-percent pace set in the prior month.

The dollar is climbing and Treasury yields are spiking higher across the front of the curve as traders pull back bets on more than one rate cut from the Federal Reserve this year. The report comes after a series of unexpectedly-strong economic data releases intersected with growing anxiety over the Trump administration’s tariff plans to enforce a more hawkish interpretation of the central bank’s policy path, and could add more momentum to prevailing market moves, tightening the screws on risk-sensitive assets across the planet.

Expectations for the next rate cut from the Fed have been kicked out to October, and all of the major currencies we track are back on the defensive against the greenback.

The Canadian economy added far more jobs than expected in December, but the print doesn’t seem likely to dramatically adjust odds on another rate cut from the Bank of Canada later this month. According to Statistics Canada, 90,900 roles were created in the month, smashing weakly-held expectations for a 25,000-position gain. The unemployment rate unexpectedly fell to 6.7 percent from 6.8 previously, as labour force growth began to slow and job creation accelerated. Average hourly wages for permanent employees rose 3.7 percent from a year earlier, slowing slightly from the prior month’s 3.9-percent print.

Statisticians also highlighted the economy’s vulnerabilities. In a special spotlight, the agency’s boffins said 8.8 percent of workers were directly dependent on US purchases of Canadian exports, with external demand-focused jobs earning higher-than-average wages.

Taken in sum, the data suggests that the Canadian economy is beginning to find its footing, but we suspect the Bank of Canada’s dovish stance will remain intact for now, with officials continuing to push rates into neutral territory—and perhaps beyond—as they attempt to build a firewall against further weakness, particularly if Donald Trump follows through on his threats to apply tariffs against Canadian goods. This should limit the extent to which Canadian bond yields follow their global counterparts higher, and keep interest rate differentials tilted against the loonie for now.

Across the pond, 30-year British government bond yields are holding near the highest levels since 1998 and the pound is trading in the low 1.20’s against the dollar, drawing comparisons with the selloff that toppled the Truss administration in 2022. As suggested in yesterday’s note, the United Kingdom’s weak economy, high inflation rates, and reliance on investor funding make it uniquely vulnerable to a rise in global borrowing costs like the one now underway.

But we’re increasingly convinced that technical factors related to bond supply and demand are exacerbating the selloff. There has been no blowout in credit default swap markets—where views on sovereign risk are traded—and market-implied inflation expectations have remained stable through the current episode, suggesting that investors are not responding to a rise in UK-specific risk levels. Instead, liquidity conditions in the gilt market have been worsening for years* as elevated levels of government spending and the Bank of England’s unusually-aggressive** quantitative tightening efforts have intersected to boost supply against a saturated institutional demand backdrop.

The pound might drop further, but a pivot is coming. A concerted effort by Labour leaders to reestablish fiscal credibility, coupled with a relatively modest recalibration in the Bank’s gilt selling programme—perhaps involving a shift toward shorter maturities—could easily reverse the current dynamic and kick sterling higher against the dollar and euro.

*For a comprehensive overview of the technical underpinnings behind the last blowup in gilt markets, check the Bank for International Settlements’ quarterly review here, and the Bank of England’s overview here.

**The Bank of England is currently reducing its balance sheet by close to 100 billion pounds a year, far faster in proportional terms than similar efforts from the Federal Reserve or European Central Bank—and more clearly weighted toward securities on the long end of the curve.