Bond Market Shrugs Off Jobless Claims Spike

The bond market gave last week's jobless claims spike exactly 24 hours of attention before returning to its regularly scheduled programming. Initial claims surged to 236,000—the highest print since September and a 44,000 weekly jump that marked the largest raw increase since July 2021. Yields on the 10-year Treasury briefly kissed 4.11% in the immediate aftermath. By Friday's close, they'd climbed back to 4.19%. Message received: the labor market can soften all it wants, but inflation remains the only variable that matters to bond traders right now.

The pattern has repeated throughout Q4. Weak employment data emerges, mortgage rates dip for a news cycle, then the bid evaporates. Last Thursday's claims number landed alongside the Fed's third consecutive rate cut, giving rate-sensitive borrowers a brief window where 30-year fixed mortgages touched 6.22% on some rate sheets. That window closed faster than a pre-approval on a jumbo with declining income.

What the Market Is Actually Trading

Powell's post-meeting presser told the story. The Fed chair went out of his way to mention that payroll estimates likely overstate job growth by 60,000 per month—implying the economy has actually been losing 20,000 jobs monthly since April. That admission barely moved the needle. Why? Because the same Fed just projected only two rate cuts in 2025, down from four in September's dot plot. Traders aren't trading labor anymore. They're trading the Fed's newfound patience on inflation.

The 10-year's path this week tells the whole story: 4.13% on December 10, a brief dip to 4.11% post-claims, then a 6-basis-point selloff to 4.19% by December 12. As of Monday's close, we're sitting at 4.15%—essentially unchanged from where we started. All that labor market drama produced a rounding error.

Rate Lock Implications

With the 10-year refusing to break below 4.10% support despite increasingly soft labor data, the technical setup favors locking. The market has demonstrated repeatedly that it won't sustain a rally on employment weakness alone. Until Core PCE prints below 2.5% or Powell explicitly signals concern about overtightening, bonds remain range-bound between 4.10% and 4.30%.

The Bigger Picture

December's claims data should have been a gift for mortgage rates. The largest weekly spike in three and a half years, arriving on the heels of a Fed cut, with Powell himself suggesting the official jobs numbers are overstated. In any normal cycle, that combination sends yields tumbling. Instead, the 10-year shrugged and moved on.

This is what happens when inflation remains the dominant narrative. The Fed's hawkish pivot at last week's meeting—fewer projected cuts, higher terminal rate—overrode every other signal. Bond traders are now pricing a "higher for longer" scenario even as the labor market cools. For borrowers hoping weak economic data would translate to lower mortgage rates, the message from the bond market is clear: not yet.