US Treasury Yields Drop as September Jobs Report Misses Expectations
- Weakening labor market data from September has sharply reduced the likelihood of a Federal Reserve interest rate increase, driving U.S.
- Economists surveyed prior to the release had anticipated an employment increase of 84,000, with the unemployment rate expected to hold steady.
- According to the CME Group FedWatch tool, traders currently price in an 84% probability that the Federal Reserve will maintain its current interest rate at its upcoming October...
Weakening labor market data from September has sharply reduced the likelihood of a Federal Reserve interest rate increase, driving U.S. Treasury yields significantly lower across the board. Nonfarm payroll employment rose by just 29,000 during the month, while the unemployment rate ticked up from 4.1% to 4.2%, according to data released by the U.S. Bureau of Labor Statistics.
Weak Employment Data Pushes Treasury Yields Down
Economists surveyed prior to the release had anticipated an employment increase of 84,000, with the unemployment rate expected to hold steady. Meanwhile, the U.S. Bureau of Labor Statistics revised August employment figures downward to a gain of 133,000 jobs.
Following the release of the September data, the benchmark 10-year Treasury yield dropped nearly 6 basis points to 5.18%, pulling back from a touch of its highest level since 2002 earlier in the week. The 30-year Treasury yield fell 3 basis points to 5.57%. The 2-year Treasury yield, which is most sensitive to Federal Reserve policy expectations, declined 6 basis points to 4.73%.
Traders Shift Rate Projections as Fixed Income Pressure Eases
According to the CME Group FedWatch tool, traders currently price in an 84% probability that the Federal Reserve will maintain its current interest rate at its upcoming October meeting. Lindsay Rosner, head of multisector fixed income at Goldman Sachs Asset Management, noted that an October rate increase remains unlikely given the latest figures.
Today’s soft data points to a labor market that is not showing signs of re-accelerating,
Rosner stated, adding that the firm’s baseline expectation remains for one further rate increase in December. Rosner also cautioned that ongoing market pressures and rising energy costs could still force the central bank into action during October.
Across Europe, government bond markets found relief following a week of severe sell-offs, with 10-year yields in major European economies dropping by roughly 3 basis points each. Prior yield increases had been driven by persistent inflation concerns and hawkish signals from central bankers anticipating prolonged higher rates.
Underlying Labor Market Resilience Balances September Slump
Average hourly earnings grew 0.1% from August, yielding a 3% year-over-year increase that likely trails current inflation metrics. Economists suggest the unexpected September weakness stems largely from seasonal adjustment distortions rather than an outright deterioration in labor market fundamentals.
Initial jobless claims continue to hover near 57-year lows alongside steady corporate profits and strong domestic demand, showing no immediate signs of widespread layoffs. Economist Justin Wolfers described the report as overall soft, noting it remains far from disastrous.
Government agencies, information services, professional and business services, and financial activities drove the month’s job losses. Conversely, healthcare, construction, and manufacturing sectors registered net payroll gains, maintaining stable demand for labor in parts of the physical economy.
The rise in the unemployment rate to 4.2% also reflects natural labor force expansion, supported by ongoing retirements and strict immigration controls under the Trump administration that constrain labor supply. Economists estimate the economy requires between 50,000 and 80,000 new jobs each month simply to keep pace with the growth of the working-age population.