US Treasury Yields Shift After September Jobs Report Disappoints

US Treasury yields experienced a notable reversal on Friday as markets reacted to the latest labor data, which showed weaker-than-anticipated job growth for September. The report contributed to a temporary decline in yields before they climbed again later in the session.

The Labor Department's monthly update revealed the economy added only 29,000 nonfarm payroll jobs last month, falling short of economists' forecasts of 90,000. Meanwhile, the unemployment rate ticked up slightly to 4.2 percent, compared with the expected 4.1 percent. August's job gains were also revised downward from 162,000 to 133,000.

Upon release, investors initially sought safety by purchasing Treasuries, pushing yields lower. However, selling soon resumed, driven by ongoing concerns about the economy’s strength, inflation pressures, and significant government debt issuance. These factors continue to create uncertainty in the bond market.

Market expectations for Federal Reserve monetary policy shifted after the report. Traders now see about an 80 percent chance that the Fed will keep interest rates steady at its upcoming meeting, up from 74 percent before the jobs data. The likelihood of a rate hike in December remains high, hovering near 86 percent, according to LSEG data.

Robert Bernstone, head of trading at SummitTX Capital in New York, described the market mood as cautiously optimistic. He noted that while the subdued job growth reduces the risk of aggressive short-term rate hikes, concerns over inflation and economic stability persist.

US rates strategist Molly Brooks from TD Securities explained the yield movements by pointing to changing expectations around Fed policy during the day, combined with profit-taking and portfolio adjustments ahead of the weekend. She emphasized that the slower pace of labor market growth eases pressure on the Fed, allowing it to focus more on inflation rather than rapid employment gains.

Looking at the week’s performance, 2-year Treasury yields fell by 3.3 basis points, marking their first weekly decline since mid-August. In contrast, the benchmark 10-year Treasury yield is set for its fifth consecutive weekly increase, rising about 10 basis points. Thirty-year bond yields are also on track for a weekly gain of 13.2 basis points, the second week in a row.

On Thursday, Treasury yields had initially surged to the highest levels seen in 24 years following strong economic data, before retreating by the end of the day. This drop interrupted a seven-day streak of rising yields for the 10- and 30-year bonds and also pushed 2-year yields lower.

Brooks cautioned that despite the recent dip in yields, the bond market remains vulnerable. The jobs report helped prevent an extreme selloff, but she warned that the market is not free from risk.

Specifically, the 10-year note’s yield rose 4.72 basis points to 5.281 percent after earlier falling to 5.157 percent, its lowest in a week. The 30-year bond yield increased 2.91 basis points to 5.6321 percent, recovering from a post-report low of 5.5523 percent. The 2-year yield, closely tied to Fed rate expectations, climbed 3.98 basis points to 4.827 percent after dropping to 4.6934 percent, its lowest level in two weeks.

Carol Schleif, chief market strategist at BMO Private Wealth, highlighted seasonal influences such as the late Labor Day holiday and delayed school start dates as factors contributing to the weak payroll numbers. She suggested that combining this month’s softer data with last month’s stronger gains might provide a clearer picture of labor market trends. Schleif also anticipates the possibility of one or more Fed rate increases within the next six to nine months.

Meanwhile, the Treasury yield curve segment measuring the difference between 2-year and 10-year yields—a gauge of economic outlook—stood at a positive 45.2 basis points, slightly steeper than the previous session’s close.

This mixed movement in US Treasury yields reflects ongoing market attempts to balance signs of economic resilience against inflation worries and monetary policy uncertainty. Investors continue to monitor employment data closely as it plays a critical role in shaping the Federal Reserve’s approach to interest rates amid evolving economic conditions.