US Treasury Yields Inch Higher after Fed

The US 10-year Treasury yield eased to around 5.25% on Monday, while the 30-year yield slipped toward 5.6% as traders scaled back expectations for an imminent Federal Reserve rate hike following weaker-than-expected US jobs data. Data released Friday showed the US economy added just 29,000 jobs in September, well below expectations of 90,000, after August’s gain was revised down to 133,000. The unemployment rate climbed to 4.2%, while annual wage growth unexpectedly slowed to 3.0%, its weakest pace since May 2021. Markets are now pricing in nearly an 80% probability that the Fed will keep policy unchanged this month, while expectations for a December hike remained around 69%. Still, Treasury yields remained near their highest levels in more than two decades amid concerns over persistent energy-driven inflation, rising US fiscal risks and increasing debt issuance linked to artificial intelligence.

The yield on the US 10-year Treasury note resumed its rise to 5.52% on Friday after falling as much as 8bps earlier in the session, as the weaker-than-expected jobs report offered only temporary relief to the bond market. Nonfarm payrolls increased by just 29K last month, well below expectations for a 90K gain, while employment figures for the previous two months were also revised lower. Fed rate expectations eased following the data, with markets no longer pricing in a rate hike this month, although traders still see a high likelihood of an increase at the Fed’s December meeting. Meanwhile, a decline in oil prices provided some relief on the inflation front, although the conflict in the Middle East remains unresolved. The benchmark 10-year yield climbed above 5.34% earlier this week, its highest level since 2002, amid expectations of further Fed tightening, the lack of a resolution to the Middle East conflict, concerns over the US fiscal and debt outlook, and resilient economic data.

The yield on the US 10-year Treasury note dropped 7 basis points to 5.175% on Friday, extending the retreat from this week’s peak above 5.34%, the highest level since 2002. The move lower followed a surprisingly weak US employment report, which reduced expectations that the Federal Reserve would need to raise interest rates at its October meeting. Nonfarm payrolls increased by only 29,000 in September, missing all estimates, while employment figures for the previous two months were revised lower. The unemployment rate also climbed to 4.2%, reinforcing signs of a cooling labour market and more cautious hiring amid elevated costs. Money markets subsequently reduced expectations for an October Fed hike, putting further downward pressure on Treasury yields. Falling oil prices added to the disinflationary backdrop, with Brent crude slipping below $100 a barrel and easing concerns over renewed energy-driven inflation.