In some ways, the unemployment rate revealed in Friday's jobs report had a certain Goldilocks quality to it. It wasn't so strong as to trigger a near-term Federal Reserve rate hike, and it wasn't so weak that it radically altered the economic outlook in a meaningful way.
But the bond market didn't seem to care — it behaved as if it got the all clear signal and it was full steam ahead for a rate hike this year.
The unemployment rate edged up to 5 percent, average hourly earnings advanced 0.2 percent and the labor force participation rate advanced to 62.9 percent, the best showing in several months. All the numbers were pretty much in line with expectations.
When coupled with some overnight developments, like the "flash crash" in the British pound, a big drop in the value of China's currency, the yuan, and there could be an argument for the Fed to remain on hold through the end of the year.
There are few signs of emerging inflation. There are still external issues that are keeping a lid on domestic and global growth. And there is uncertainty surrounding the outcome of the November presidential election.
But in the bond market, after an initial dip, yields on the 10-year Treasury note bounced back, climbing above 1.75 percent. That's the highest yield in several months.
In addition, global bond markets may be anticipating less help from central banks, i.e., a tapering of bond buying and zero, or negative, interest rate policies (ZIRP and NIRP), in favor of more fiscal stimulus.
Fiscal levers used to stimulate economies require more government spending, hence more government borrowing, effectively relieving central banks of holding down rates.
That also increases the supply of bonds, pushing down bond prices and pushing bond yields higher.
Cleveland Fed President Loretta Mester told CNBC after the jobs report that the data are solid, hinting that it may be strong enough to warrant a Fed rate hike before the year is out.
Her argument is that Fed policy needs to be forward-looking, given that full employment appears to be upon us, she wouldn't even rule out a Fed rate hike as early as November, just before the presidential election.
Of course, hers is just one view, however the Fed continues to make a case for higher rates and, for the first time in this elongated cycle, the bond market appears to agree.
While I have been of the mind that the Fed won't raise rates this year, it's getting increasingly difficult to fight the message of the bond market.
I would prepare for a December rate hike of one-quarter-percentage point, to a half percent, despite my misgivings about such a move.
Goldilocks may have entered the building, but it appears the Fed may be getting ready to leave.
