Treasury Yields Fall After July Jobs Data Misses Forecast

U.S. Treasury yields fluctuated this week as investors weighed conflicting signals regarding Federal Reserve monetary policy. Shorter-dated yields initially rose Thursday after Neel Kashkari, President of the Minneapolis Federal Reserve, argued that strong corporate earnings and labor market sentiment meant "now is the time" to raise rates. The 2-year Treasury note yield climbed to 4.1977% during this period.

Market sentiment shifted on Friday following the release of Bureau of Labor Statistics data. Contrary to economist forecasts of an 83,000 job increase, July nonfarm payrolls unexpectedly decreased by 23,000. This labor market weakness, coupled with downward revisions to previous months, caused the 2-year Treasury yield to fall eight basis points to 4.16% and the 10-year rate to decline six basis points to 4.62%.

Traders subsequently reduced the probability of a September rate hike from 60% to 40%. While President Donald Trump reiterated his preference for lower rates, Federal Reserve Chairman Kevin Warsh has refused to provide forward guidance on policy. Investors are now looking toward consumer price figures due Wednesday to assess inflation trends, particularly as energy prices rise amid the U.S. war with Iran.