Equities find footing as yields ease, but jobs data looms

Equities are finding some welcome breathing room on the day as the bond market's grip loosens slightly. However, the relief could prove short-lived with the US jobs report still on the horizon.

The 10-year Treasury yield has retreated to around 5.23% after hitting 5.34% the previous session, a level not seen since 2002. In Europe, the 10-year German bund yield has eased to roughly 3.43%, well below the earlier weekly peaks near 3.65%. This pullback in yields has given stocks enough room to stage a recovery.

The DAX is up 1.1% on the day, while the CAC 40 has climbed 1.0%. US futures are also holding up, with S&P 500 futures advancing about 0.5% as technology shares stay firm into the opening bell.

The sense is that after the sharp bond selloff earlier this week, investors are not necessarily demanding a collapse in yields. The market simply needs the upward pressure to pause.

If long-term yields keep pushing higher nearly every session, equities have to constantly reprice valuations, borrowing costs, and the policy outlook. When that pressure eases—even temporarily—the urgency to sell fades.

That seems to be driving the positive tone today.

The catch is that the US jobs report could quickly alter the narrative.

With Treasury yields already near multi-decade highs, markets will be particularly reactive to any element of the report that bolsters the higher-for-longer rates outlook. The headline payrolls figure won't be the only thing in focus.

A robust jobs number, if paired with stronger wage growth, could send Treasury yields climbing again, testing the current equity rebound.

Conversely, a weaker reading would likely provide additional room for yields to drop further and risk sentiment to improve. Still, a single report is unlikely to signal a definitive shift in the broader trend.

At the long end of the curve, structural forces continue to weigh on the bond market. Beyond persistent inflation concerns, rising fiscal and debt supply risks, along with higher term premiums, remain key drivers of the selloff in longer-dated bonds.

One softer non-farm payrolls report won't change that.

So while the mood has calmed for now, the underlying fragility persists.

A weaker NFP might extend today's relief a bit longer, but the larger pressures on the bond market are here to stay.