Leading indicators point to a roughly as-expected reading in the payrolls report, with headline job growth potentially coming in somewhere in the 180,000-240,000 range, albeit with a big band of uncertainty given the current global backdrop, according to Matthew Weller at Forex.com and City Index.

“With an interest-rate cut largely priced in at this point, the risks may be skewed slightly toward a bounce in the greenback if the jobs report revives the odds of a December pause,” Weller noted. “Though any market moves might be limited as the Fed’s policy decision is more around when rather than if it will pause rate cuts in the near future.”

A stronger headline would be warmly welcomed by markets, supporting a theme of normalization rather than a deterioration on the jobs front, according to Oscar Munoz and Gennadiy Goldberg at TD Securities.

“We expect a stronger reading to initially lead to a significant bear-flattening reaction, but see a likelihood that the initial knee-jerk is pared back after markets assess the details,” they noted. “We remain buyers of duration on dips and will look to higher yields as a possible entry point to reestablishing longs.”

One of the more popular trades within the fixed income markets this year has been the expectation of a steeper Treasury yield curve, with investors either expecting the short-end of the curve to fall and/or the back end to either stay put or even rise, according to Lawrence Gillum at LPL Financial.

However, stronger economic data has priced out the need for the Fed to aggressively cut short-term interest rates and now with recent commentary suggesting the Fed is in no hurry to cut rates, the front end of the curve has stalled at current levels and has kept the long end range-bound.

“If the Fed pauses too long or if they suggest the ‘neutral’ rate is higher than market expectations, markets may become concerned about the deleterious impact of high interest rates, which may actually cause long-term interest rates to fall, further tightening the spread between short and long-term interest rates,” he noted.

On average, the 10-year yield is higher than the fed funds rate by about 1%, so the yield curve will eventually go back to its upward sloping shape but that may not happen until the middle of next year, Gillum concluded.

Since the US central bank began easing rates in mid-September, two-, five- and 10-year Treasury yields have risen from around 3.5% to above 4%. The selloff has been accompanied by traders reducing the chances of sweeping cuts amid resilient economic data, with a little more than three quarter-percentage point cuts over the coming 12 months to around 3.7%.

A string of stronger-than-estimated data points sent the US version of Citigroup’s Economic Surprise Index soaring this year. The gauge measures the difference between actual releases and analyst expectations.

“While the 10-year US Treasury yield may see upward pressure from economic strength and potential policy impacts, yields on shorter-dated notes could still fall, although perhaps not as far as in Europe, as policymakers there have more work to do,” according to Janus Henderson Investors’ 2025 market outlook.

Janus also noted that the global economy is somewhat late in the cycle — warranting caution — yet the data continue to defy expectations, and growth is steady.

What does this mean for investors?

“At the highest level, the combination of rate cuts and other potential accommodative policy in the U.S. and stimulus in China should lend support to the global economy. Still, there are forces at play that make it imperative to apply caution when adding risk,” Janus said. “Broadly speaking, markets have been quick to price in the cycle’s extension, leaving valuations vulnerable to downgrades if risks increase.”

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This story was produced with the assistance of Bloomberg Automation.