US 10-Year Yield Pressured by Soft Jobs Data

The yield on the US 10-year Treasury note held around 4.66% on Monday but remained subdued after weaker-than-expected US employment data lowered expectations for a near-term Federal Reserve interest rate hike. Nonfarm payrolls unexpectedly declined by 23,000 in July, while sizeable downward revisions to the previous two months reinforced signs of a weakening labor market. Markets now price around a 44% chance of a 25 basis point rate hike in September, down from 67% a week earlier. Investors are turning their attention to key inflation data due this week for further clues on the monetary policy outlook. Meanwhile, markets continued to track developments in the Middle East as Iran denied holding direct talks with the US, despite Washington’s claims that a deal was close. Tehran also maintained its demands for an end to the US naval blockade, the lifting of sanctions and compensation for war-related damage before any agreement.

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.