US Markets

Earnings will keep bond yields in check: Strategist

Earnings growth to cap bond yields: Strategist
Earnings growth to cap bond yields: Strategist

U.S. bond yields hit multimonth highs following a better-than-expected October jobs report, but anemic corporate earnings growth should keep them in check, Voya Investment Management's Doug Cote said Monday.

The U.S. 10-year Treasury yield touched 2.349 percent on Friday, its highest level since July, after the Bureau of Labor Statistics reported the United States added 271,000 jobs in October and the unemployment rate ticked down to 5 percent.

Economists had expected the government to report 183,000 new nonfarm payroll positions.

Many on the Street — including Goldman Sachs, Citigroup, and Barclays — now predict the Federal Reserve will raise interest rates from near zero at its December meeting.

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Cote, chief market strategist at Voya, said it would now be "unwarranted" for the Fed to hold rates steady. However, following the Fed's expected 25-basis point increase, U.S. bond yields could face other pressures.

"We don't see yields really skyrocketing in any shape or form, so I think they're going to be tame, but you're definitely getting slight run-up," Cote told CNBC's "Squawk Box."

While the consumer is in a virtuous cycle of job growth, weak inflation and low oil prices, the fundamentals don't look so good, with corporate earnings and revenue growth looking like they will be negative or flat in the previous quarter, Cote said.

"What I'd like to see is the strength of the consumer flow into corporate earnings. I want to see visibility on earnings," he said.

The "elephant in the room," he said, is the prospect of continued easy monetary policy and further stimulus in Europe and China at a time when the Fed is trying to raise rates, he said.

Diverging interest rate policy could make it difficult for the Fed to continue tightening.

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With inflation low, the Fed will likely raise interest rates slowly next year, Jack McIntyre, Brandywine Global portfolio manager and research analyst, told "Squawk Box."

As for whether a downturn in stocks could stay the Fed's hand, McIntyre said, "I think it would have to be a very ugly environment for the equity market to derail the Fed from tightening."