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Treasury yields dropped sharply Friday, with rates on the 10-year note and 30-year bond retreating from their highest levels since November, after the July employment report showed the U.S. economy added fewer jobs than expected.
Yields still saw a significant weekly rise, however, as investors await a large increase in debt issuance by the U.S. government.
What’s happening
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The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
fell 10.3 basis points to 4.791% on Friday, leaving a 10.4 basis point drop for the week. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell 12.8 basis points to 4.06%, its biggest one-day drop since May 2, leaving it with a weekly rise of 9.2 basis points. -
The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
fell 9 basis points to 4.214%, trimming its weekly rise to 18.6 basis points.
What’s driving markets
The U.S. economy added 187,000 jobs in July, the Labor Department said. Economists had looked for an increase of 200,000. Jobs gains for June and May were also revised lower.
The unemployment rate, however, ticked down to 3.5% from 3.6%, while average hourly earnings rose 0.4%, for a 4.4% year-over-year gain, which was stronger than expected.
Treasury securities at the long end of the curve tumbled in value this week on signs the U.S. economy is still growing at a solid clip. The 10-year yield surged by 11 basis points on Thursday, taking it to the highest level since Nov. 7, 2022. The 30-year yield also reached the highest level in 10 months.
Traders and investors this week were also focused on the U.S.’s deteriorating fiscal outlook as underscored by the Treasury’s plans to borrow $1 trillion in the third quarter and Fitch’s downgrade of the government’s top AAA rating on Tuesday.
What analysts are saying
“This jobs report is definitely not a gamechanger,” said Seema Shah, chief global strategist at Principal Financial Management, in a note.
“The Fed still has another report to come before their next meeting but, if no clear direction emerges, the Fed is likely to stay put,” she said. Federal Reserve Chair Jerome Powell “seems to need a very compelling reason to hike again so, with the hurdle so high, it would likely take a meaningful upside surprise to both job gains and wage growth to prompt Fed action in September.”
The steepening of the yield curve, with rates at the long end rising as shorter-dated yields fell, “has been a function of the Treasury Department’s increase in auction sizes and signaling that there is more to come in November — and February could also see greater borrowing needs translate into larger nominal coupon auction sizes,” wrote strategists Ian Lyngen and Benjamin Jeffery of BMO Capital Markets.
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