Treasury yields dip ahead of U.S. jobs data that may impact Fed thinking

Reuters Interview 7/8/22
July 8, 2022
CNBC Interview 7/8/22
July 8, 2022

Treasury yields dip ahead of U.S. jobs data that may impact Fed thinking

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U.S. bond yields slipped on Friday, though trading was cautious ahead of the June jobs data that may impact Federal Reserve thinking on the path for interest rates.

What’s happening

  • The yield on the 2-year Treasury TMUBMUSD02Y, 3.007%slipped by less than 1 basis point to 3.012%.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 2.987%retreated 1.8 basis points to 2.984%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 3.184%fell 1.7 basis points to 3.172%.
  • The 10-year to 2-year spread of minus 2.8 basis points means the yield curve remains inverted, potentially signaling a looming economic downturn.

What’s driving markets

Bond investors were waiting to parse the U.S. June nonfarm payrolls data, due for release at 8.30am Eastern. Forecasts suggest 250,000 jobs were added last month, down from 390,000 in May. Wage growth is expected to rise by 5% year-on-year.

SeeHiring in U.S. likely fell to 18-month low in June — 250,000 new jobs forecast

A stronger-than-expected report would likely force Treasury yields higher, and further invert the yield curve, as traders increase bets that the Federal Reserve will raise borrowing costs more aggressively in its campaign to suppress inflation.

Futures markets suggest the Fed will increase borrowing costs to 3.5% in 2023, but just three weeks ago expectations were for rates of 3.9%. A weak report may pull such forecasts lower still.

“The bond market seems less concerned with inflation as investors focus on the recession. Obviously, the question now facing the debt market is how steep of a domestic or global recession it will be,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“We therefore reiterate, yields have seen their highs and are likely to trade off the perspectives of a hard landing ahead,” he added.

Fed rate rise expectations easeDeduct reading from 100 to get expected Fed policy rate30-Day U.S. Federal Funds Mar 2023Source: FactSet