Treasury yields tumbled across all maturities on Thursday, July 2, 2026, as a much weaker-than-anticipated June jobs report dampened expectations for an imminent Federal Reserve interest rate hike. The yield on the 10-year Treasury note fell by 18 basis points to 4.30%, while the two-year yield, highly sensitive to Fed policy, dropped 21 basis points to 3.96%. This marked the largest daily decline in bond yields since the previous April, reflecting a significant shift in market sentiment.
The Labor Department's report indicated that U.S. employers added a mere 57,000 jobs in June, a sharp decline from May's revised 129,000 and April's revised 148,000. This figure was substantially below economists' forecasts, which had generally anticipated job growth around 110,000. The unemployment rate also dipped slightly to 4.2% from 4.3% in May; however, this decline was attributed more to people leaving the workforce than to robust job creation, indicating underlying labor market weakness.
The subdued jobs data led traders to scale back their hawkish bets. Prior to the report, markets had priced in a roughly 60% chance of a Fed rate hike by September. Following the release, these odds decreased significantly, with some economists, like those at Citigroup, suggesting that a rate hike is now less likely to materialize if inflation trends continue to ease. This sentiment was echoed by Federal Reserve Chair Kevin Warsh's recent comments that easing inflation expectations reduced the urgency for rate increases, despite the central bank's commitment to price stability.
Despite the immediate rally, some economists, including Shruti Mishra at Bank of America Securities, noted that a job gain of even 57,000 might be sufficient to keep the unemployment rate stable or even lower it due to factors like an aging workforce and reduced immigration. However, the overall weak print reinforced concerns about economic health amid elevated inflation and cautious business outlooks, reinforcing the notion that the Fed might pause on further tightening to avoid stifling growth. The previous month saw robust job gains and a full pricing-in of a Fed hike by year-end, driven by strong May data, but June's figures have reversed this trend.
