After Jobs Data, Treasury Yields Pull Back From Near Ten-Month Highs

On Friday, Treasury yields experienced a slight decline following the release of the July jobs report, which did not alter expectations that the Federal Reserve would maintain interest rates at their current level next month.

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While yields have seen a significant rise throughout the week, driven by anticipation of a substantial increase in U.S. government debt issuance, they showed a modest retreat after the report's release.

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The yield on the 2-year Treasury fell 5.4 basis points to 4.846%, while the yield on the 10-year Treasury decreased 2.9 basis points to 4.159%, and the yield on the 30-year Treasury dropped 3.2 basis points to 4.269%. It's important to note that yields move in the opposite direction to prices.

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The Labor Department reported that the U.S. economy added 187,000 jobs in July, slightly below economists' expectations of 200,000. Moreover, jobs gains for the preceding months of June and May were also revised lower. However, the unemployment rate declined to 3.5% from 3.6%, and average hourly earnings saw a 0.4% increase, leading to a 4.4% year-over-year gain, which exceeded expectations.

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The recent surge in long-end Treasury yields was driven by indications that the U.S. economy is continuing to grow at a robust pace. On Thursday, the 10-year yield surged by 11 basis points, reaching its highest level since November 7, 2022. The 30-year yield also reached its highest level in 10 months.

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Analysts, including Seema Shah, Chief Global Strategist at Principal Financial Management, believe that the jobs report is not a significant game-changer for the Federal Reserve's decision-making process. They anticipate that the Fed will closely observe one more report before their next meeting. Powell, the Federal Reserve Chair, appears to require a compelling reason to consider raising rates again, making it likely that they will maintain their current stance in September. A meaningful upside surprise in job gains and wage growth would be necessary to prompt any action by the Fed at this point.

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