US Treasury yields decreased on Friday after data revealed an unexpected loss of 23,000 jobs in July, contrary to the Dow Jones consensus forecast of an 83,000 gain. This unexpected downturn in the labor market raised concerns and reduced the immediate outlook for higher Federal Reserve interest rates. Brent Wilsey, chief investment officer at Wilsey Asset Management, noted that this weaker-than-expected report, coupled with persistent elevated inflation, creates a "conundrum" for the Federal Reserve.
The yield on the 10-year US Treasury note, a key benchmark for various loans, dropped by 4 basis points to 4.621%. The 2-year Treasury note yield, which is more sensitive to short-term Fed rate expectations, fell by over 6 basis points to 4.176%, reaching its lowest level since July 17. The 30-year Treasury yield also slipped by 2 basis points to 5.189%. Bond traders have been actively hedging against rising yields, with the cost of such protection surging as long-bond yields hit a 19-year high recently.
Following the jobs report, traders adjusted their expectations for a rate hike at the Federal Reserve's September policy meeting. The probability of a hike next month decreased to 44%, while the odds of a hike by October stood at 58.3%, according to CME Group's FedWatch tool. Despite the job losses, the unemployment rate unexpectedly slipped to 4.1% from 4.2%, and the labor force participation rate fell to 61.4%, its lowest in over five years.
