Treasury Yields Edge Lower

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.

The yield on the US 10-year Treasury note fell to 5.23% on Friday, supported by a retreat in oil prices amid reports that European countries were discussing the release of strategic reserves. The decline in oil prices eased inflationary pressures for now, while the upcoming jobs report will be closely watched for signs of labor-market strength and further clues on the Fed’s policy path. Markets have pared expectations for further Fed rate hikes to just one additional increase this year, with bets shifting from October toward December. Expectations for more than three hikes over the next 12 months have also receded. The benchmark 10-year yield climbed above 5.34% this week, its highest level since 2002, amid expectations of further tightening by the Fed, the lack of a resolution to the Middle East conflict, concerns over the US fiscal and debt outlook, and resilient economic data.