Treasury yields rebound after weak jobs report fuels Fed pause expectations
Quick Look
- Treasury yields rose on Friday after an initially negative reaction to a weaker-than-expected September jobs report, which showed only 29,000 new nonfarm payrolls and an unemployment rate increase to 4.2%.
- The data reduced expectations for an October Federal Reserve rate hike, though analysts still see potential for a December increase.
AI-generated summary
Why It Matters
The Federal Reserve has been raising interest rates to combat inflation, with Treasury yields serving as a key market indicator of monetary policy expectations. Recent economic data has shown mixed signals, creating uncertainty about the future path of rates.
Treasury yields rose on Friday, after initially falling following an unexpectedly weak September jobs report likely put the brakes on a Federal Reserve rate hike in October.
The benchmark 10-year Treasury yield rose 2 basis points to 5.26%. Earlier this week, the yield reached its highest levels since 2002. The 30-year Treasury yield added 1 basis point at 5.619%. The 2-year Treasury yield, which is the most sensitive to Fed moves, was higher by more than 3 basis points at 4.818%.
One basis point is equal to 0.01%, and yields and prices move in opposite directions.
Nonfarm payrolls increased by just 29,000 for the month while the unemployment rate increased to 4.2% from 4.1%, the Bureau of Labor Statistics reported Friday. Economists surveyed by Dow Jones had been predicting an 84,000 increase and unemployment to remain steady. The August jobs count was revised lower to a gain of 133,000.
Yields initially fell in reaction to the report, but throughout the trading session they moved back into positive territory.
"I think that's the right move because I don't think this report necessarily changes the story for the Fed," said Timothy Chubb, chief investment officer at Girard Advisory Services. "I still think the trajectory from here is higher for longer."
Traders now see a 78% chance that the Federal Reserve will hold rates steady at its October meeting, according to the CME Group's FedWatch tool, though traders still see a high likelihood for a hike at its meeting in December.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, agrees that a rate increase is unlikely this month, but that it's likely the Fed's hiking cycle isn't over.
"Today's soft print argues against the idea that the labor market is retightening," she said. "One follow-up hike in December remains our base case; however, continued pressure by markets and moves higher in energy prices could force the Fed's hand this month as well."
What to Watch
AI outlook — possibilities, not facts
The Federal Reserve will hold interest rates steady at its October meeting
Likely · Within weeks
The Federal Reserve may raise interest rates again at its December meeting
Possible · Within months
Open Questions
- Will energy price increases influence the Fed's decision-making in October?
- How will revised August job numbers affect long-term labor market assessments?
- What specific economic indicators will the Fed prioritize in its October meeting deliberations?
