Treasury Yields Fall Sharply After Weak Jobs Report

The yield on the US 10-year Treasury note fell sharply by 7 basis points to 4.6% on Friday after a weaker-than-expected jobs report scaled back bets on Fed rate hikes. Nonfarm payrolls unexpectedly declined by 23,000 last month, while figures for May and June were also revised sharply lower by a combined 103,000. Meanwhile, the unemployment rate fell to 4.1% from 4.2%, suggesting the labor market is facing renewed challenges after showing surprising strength earlier this year. The odds of a Fed rate hike in September fell to 42%, from 58% yesterday, while expectations for rate increases by December declined to 28 basis points from 32 basis points earlier. On Thursday, a Financial Times report said Fed Chair Warsh is set to stick with the central bank’s lean messaging despite the market backlash. Still, he would be prepared to raise rates in September if inflation readings released in the coming weeks come in hot, the FT reported.

The yield on the US 10-year Treasury note held around 4.68% on Friday after rising more than 5 basis points in the previous session, as investors awaited the closely watched July jobs report for fresh clues on labor market strength and the outlook for Federal Reserve monetary policy. Fed officials have increasingly signaled they are prepared to raise interest rates soon amid mounting inflationary pressures, with markets pricing in a 25-basis-point hike in September. The Financial Times reported that Chair Kevin Warsh would be willing to raise rates next month if inflation readings in the coming weeks remain elevated. The Fed chief is also expected to maintain his stripped-back communication style despite criticism from financial markets. Additionally, Treasury yields were supported by a rebound in oil prices as renewed tensions in the Strait of Hormuz reignited concerns about inflation and the interest rate outlook.

The yield on the US 10-year Treasury note rose to 4.67% on Thursday as investors continued to assess the path of interest rates. A report from FT showed Chair Warsh is set to stick with lean Fed messaging despite market backlash. Still, he would be prepared to raise rates in September if inflation readings released in coming weeks are hot, the FT reported. Markets see around a 58% chance of a Fed rate hike next month, down from 68% on Monday. Attention now turns to the US jobs report, which is expected to provide fresh insight into labour market conditions. Investors expect payroll growth to remain resilient, although ADP data released earlier this week showed private-sector hiring slowed sharply in July. Meanwhile, announced job cuts fell to their lowest level in two years. At the same time, a lasting agreement between the US and Iran appears unlikely in the short term, keeping pressure on energy prices and sustaining concerns that higher commodity costs would fuel inflation.