U.S. employment data came out on the strong side of expectations. The economy grew a net 195k June and the back two months saw a combined 70k upward revision. In addition, the increase in hourly earnings of 0.4% will underpin expectations for an increase in both income and consumption. It also creates the impression that the U.S. economy finished Q2 with some momentum with bodes well for Q3 GDP. The jobs data will strengthen expectations of tapering Fed asset purchases, but we still think the talk of a move later this month is pre-mature. U.S. yields are rising sharply in the aftermath of the jobs report, with the 10-year yield up around 15 bp to 2.65%. Looking at the Fed funds and Eurodollar futures curve, the market perceives an increased likelihood of a late 2014 hike in the Fed funds rate, which is completely discounted by early 2015.

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