Investors in U.S. government debt have been betting for days on a weak jobs report—and they nailed it.
The Bureau of Labor Statistics said Friday that employers added 22,000 positions last month, far fewer than forecast, and June’s figures were revised to a job loss, breaking a streak of payroll gains.
Bonds rallied after the report, with the 10-year yield and 30-year yield currently lower by about 0.08 percentage points each. (Bond prices move inversely to yields.)
But even before Friday, it was clear Treasury investors were prepping for weak jobs data. Yields on two-, 10-, and 30-year bonds fell for two straight days ahead of the report, with the 10-year yield settling on Thursday at its lowest level since April 30. The rate on the 2-year note, which most closely follows expectations for interest rates, settled Thursday at 3.591%, its lowest in a year.
The U.S. Treasury market’s behavior ahead of the jobs report “suggests that there is a clear bias toward weakness on the employment front,” wrote rate strategist Ian Lyngen from BMO Capital Markets this morning before the report. Lyngen profited from an investment in 10-year notes, selling a portion of them as yields fell from 4.31% on Aug. 12, when he bought the note.
Ken Mahoney, CEO of Mahoney Asset Management, noted after the report that the two-year Treasury rate moved below the Fed’s interest rate range of 4.25% to 4.50%.
“The bond market has been ahead of the Federal Reserve and giving them a clue,” Mahoney wrote.
The market’s foresight was likely helped by other labor data released earlier this week. Jobless claims rose to 237,000 from 229,000 and ADP reported that 54,000 jobs were created in the private sector in August, almost halving from July’s tally.
Although investors had predicted a soft report Friday, the market response indicates it may have been even weaker than expected.
Since August of 2024 through this August, job reports have come in weaker than expected six times, and on those days the 10-year yield has averaged a decline of 0.03 percentage points. The 10-year yield fell as much as 0.113 percentage points Friday afternoon, or nearly four times the average, according to Dow Jones Market Data.
The 10-year yield has only staged a bigger drop in two of those past six instances.
Next week the market is going to get a read on inflation, but Lyngen cautioned the results were unlikely to have as much of an impact on the bonds market as the latest jobs data.
“We are wary against assuming that the CPI/PPI combination has the potential to materially reprice the US rates market,” Lyngen wrote in his note earlier this morning. “The market is no longer willing to let the inflation figures entirely dictate the macro narrative.”
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
