Strong economic data raises prospect of yields surging further
Some fear inflation rebound, see risk of Fed hike
Higher yields could further wobble stocks
Some see 5 yield as threshold for allocation shifts

NEW YORK, Reuters A recent surge in U.S. Treasury yields may gain even more momentum after a strong jobs report reinforced expectations that interest rates will stay high for longer and raised the spectre of benchmark 10year yields hitting 5 a level that some fear could rattle broader markets.

Fridays jobs report revealed that employers added 256,000 jobs in December, well above economists forecasts, while the unemployment rate dropped, bolstering market expectations that the Federal Reserve will maintain elevated interest rates to curb economic overheating.

That news dashed investors39; hopes for some respite from a sharp rise in Treasury yields that has wobbled stocks since the beginning of the year. The data also reignited concerns about inflation, which remains stubbornly above the Fed39;s 2 target.

The report was obviously negative for inflation, said Felipe Villarroel, partner and portfolio manager at TwentyFour Asset Management. This is definitely not an economy that is decelerating.

Traders are now expecting the central bank will wait until at least June to reduce its policy rate. Before the jobs data, they were betting the Fed would cut rates as early as May with about a 50 chance of a second cut before year end.

Both J.P. Morgan and Goldman Sachs…