The latest labor data caught the market off guard once again. The number of weekly unemployment claims dropped to 198,000 on Thursday, well below the expected 215,000, and this unexpected performance directly impacted investors' pricing of a rate cut by the Federal Reserve this year.

The latest CME interest rate futures quotes reflect this shift: the probability of the Fed remaining on hold or only cutting once has risen to 37%, an increase of 11 percentage points from the end of last year. Meanwhile, the previously widely anticipated scenario of three or more rate cuts now has only a 32% chance, down from 43% at the end of the year.

The bond market's reaction was even more direct — yields on all maturities of U.S. Treasuries declined collectively, with yields rising across the board. The 2-year Treasury yield surged 6 basis points to 3.564%, the 5-year rose 5.94 basis points to 3.768%, the 10-year increased 4.53 basis points to 4.171%, and the 30-year Treasury yield also climbed to 4.796%. The sharp rise in short-term yields is particularly noteworthy, as it often reflects market expectations regarding the Federal Reserve's recent policy stance.

The resilience of the U.S. labor market has not been a recent phenomenon. The December non-farm payroll report already signaled this — the unemployment rate unexpectedly declined, indicating the employment market's strong absorption capacity. This robust labor data contrasts interestingly with the slightly lower-than-expected core CPI, complicating the Fed's policy options. The economy is neither weak enough to warrant significant rate cuts nor hot enough to justify further hikes, and this delicate balance is reshaping market expectations.