Weaker-than-projected payroll numbers for September pushed traders to scale back their bets on additional Federal Reserve tightening, a shift that drove US Treasury yields to reverse an earlier retreat and move higher. Nonfarm payroll data for September put new hiring at 29,000 positions, falling well short of the 90,000 forecast analysts had anticipated. September's jobless rate landed at 4.2%, a touch above the 4.1% that economists had pencilled in.
Figures for August hiring were pulled back to 133,000 after an earlier count had put the total at 162,000. Treasuries drew buyers when the report first landed, yet that demand faded as sellers returned, a reversal that laid bare the multiple pressures bearing down on the market — among them robust economic output, a swelling supply of government debt, and persistent concern about rising prices.
By the time the data landed, market participants had nudged their rate-hold probability estimate for this month's policy meeting up to around 80%, from roughly 74% beforehand. Odds of a rate move at the December meeting hovered near 86%, based on LSEG figures, while one analyst noted the day's data pointed to an economy that was not expanding at a rapid pace. Whether that figure holds up under scrutiny is a matter yet to be settled.
Questions about near-term interest rate adjustments may be settled for now, yet broader doubts about the health of the economy and the path of inflation remain unresolved. Traders at SummitTX Capital in New York are approaching the situation with measured hopefulness rather than outright confidence, according to Robert Bernstone, who leads the firm's trading desk.
Two-year Treasury yields posted their first weekly drop since early August, slipping 3.3 basis points over the five-day stretch. Brooks, a rates strategist at TD Securities covering US markets, attributed the reversal from the day's initial move to shifting expectations around Fed policy and to traders unwinding positions ahead of the weekend. In her view, the jobs data reduced concern that the labor market was on course to accelerate again, which would have compounded inflation worries, and with that risk appearing less pressing, she noted the Fed's attention could settle more narrowly on the inflation side of its mandate rather than on any urgency to raise rates further.
Heading into the close of the week, the benchmark 10-year yield looked set to post a rise of around 10 basis points, a move that would extend its winning run to five straight weeks. Heading into the weekly close, 30-year bond yields stood roughly 13.2 basis points higher than where they opened — a back-to-back uptick spanning two consecutive weeks.
By Thursday's close, a rebound in US Treasury markets had pushed yields downward, unwinding the morning's losses after long-term rates had climbed to a 24-year peak on the back of incoming economic data. Thursday's retreat in bond markets halted a run of seven straight sessions in which both 10-year and 30-year yields had climbed, with 2-year rates also edging lower on the day.
Friday's figures drew some previously reluctant buyers back into the market, yet Brooks noted that whether the bond selloff had fully run its course was far from settled. Brooks noted that the data had helped avert a sharp selloff, while cautioning that bond markets had not yet moved into safer territory — a view reflected in 10-year US Treasury yields, which climbed 4.72 basis points to close at 5.281% after touching a one-week low of 5.1570% earlier in the session.
Climbing nearly three basis points from a post-jobs-report low of 5.5523%, the 30-year bond yield settled at 5.6321%. Tracking short-term rate expectations for the Federal Reserve, the 2-year Treasury note's yield climbed to 4.827%, adding roughly 3.98 basis points on the session.
Following the labor market data release, the yield slipped to 4.6934% — a two-week trough. Carol Schleif, chief market strategist at BMO Private Wealth, described the headline reading as superficially weak, attributing the softness to a late Labor Day holiday and an unusually delayed start to the school year. She added that averaging last month's above-trend figure against this month's more subdued one would likely produce a clearer picture, and that she considers one or more Federal Reserve rate increases possible within the next six to nine months.
The two-to-ten-year spread on US Treasury notes — a portion of the yield curve that markets track for clues about the economic outlook — registered 45.2 basis points in positive territory, edging modestly wider than its closing level from the prior session.
