US 10-Year Treasury Yield Drops to 4.4% as Labor Market Softens and Rate Cuts Expected

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US 10-Year Treasury Yield Falls to 4.4% Amid Softening Labor Market Data

Team FS

03/Jul/2024

Key Points:

US 10-Year Treasury yield fell to 4.4% from a three-week high of 4.46%.

Labor market data revealed fewer private sector jobs added and rising unemployment claims.

Market anticipates the Fed's first rate cut in September, with longer-duration Treasuries under pressure.

The yield on the US 10-Year Treasury note fell to 4.4% on Wednesday, easing from a three-week high of 4.46% touched two sessions prior. This decline was driven by new economic data highlighting the impact of a moderating economy on the US labor market.

The ADP report indicated that fewer private sector jobs than expected were added to the economy in June. Additionally, continuing unemployment claims rose for the ninth consecutive week, reaching their highest level since 2021. This data suggests that the labor market is beginning to show signs of weakening under the pressure of higher interest rates, following a prolonged period of resilience.

Despite the overall softening trend, the JOLTS job openings and Challenger job cuts reports were better than expected, adding some complexity to the labor market outlook. However, the broader data reinforced the view that the labor market is due to give in to the higher interest rates.

The market continues to show a loose consensus that the Federal Reserve will deliver its first of two 25bps rate cuts this week in September. This expectation is based on the belief that the Fed will need to take action to support the economy as signs of a slowdown become more apparent.

Despite this expectation, Treasuries with longer durations remained under some pressure. This pressure is partly due to the skew toward Donald Trump's favor in the upcoming Presidential election following last week’s debate, where he made expansionary fiscal pledges. These pledges could lead to increased government spending and higher deficits, potentially impacting the long-term outlook for Treasuries.

In summary, the yield on the US 10-Year Treasury note fell to 4.4% amid signs of a softening labor market, with fewer private sector jobs added and rising unemployment claims. The market anticipates the Federal Reserve's first rate cut in September, although longer-duration Treasuries face pressure from political factors. This decline in Treasury yields reflects growing concerns about the economic outlook and the potential need for monetary policy support.

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US 10-Year Treasury Yield Falls to 4.4% Amid Softening Labor Market Data

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