US July Employment Data Fails to Impress, Triggering a Spike in US Treasury Yields; Fed September Rate Cut Possible
Zhitong Caijing APP has learned that after a disappointing employment report was released, the US Treasury market surged rapidly, particularly short-term Treasury bills, with yields plummeting sharply and setting an 8-month record high.
At around 9:00 AM Eastern Time on Friday, the two-year Treasury yield fell to as low as 3.7165%, a single-day drop of 23.35 basis points, the largest since 2001 for an August opening day. As yields are inversely related to bond prices, this means that short-term Treasury investors earned a significant profit on their account.
James Reilly, market economist at Capital Economics, commented: "This is a very large and sudden change." He noted that the market had initially expected a relatively quiet period in early August. The MOVE index, which measures Treasury yield volatility, fell to its lowest level since 2022 on Thursday, indicating a dramatic shift from market expectations.
The trigger for this market reversal was the release of a set of employment data. The data showed that the US added only 73,000 non-farm jobs in July, far below market expectations. Moreover, the number of new jobs added in May and June was revised downward by a net 258,000. This series of weak signals prompted the market to sharply increase its expectations for a September rate cut by the Federal Reserve, thereby driving Treasury yields broadly lower.
Freya Beamish, chief economist at TS Lombard, said: "Given these data background and limited impact of tariffs on inflation, the Fed may choose to cut rates in September." Market strategist Peter Boockvar also noted that investors can now "basically bet on the Fed cutting rates in September."
Recently, Federal Reserve officials Christopher Waller and Michelle Bowman have publicly supported a rate-cut stance, citing concerns about the labor market. However, inflation remains a concern. According to the June Consumer Price Index (CPI), US inflation rose by 2.7%, significantly higher than the Fed's long-term target of 2%. If rates are cut prematurely, it could stimulate stronger inflation before tariffs have fully taken effect.
Jim Bianco, CEO of Bianco Research, said in an online discussion that the bond market seems to be viewing the employment market as "a disaster that must be addressed through monetary policy." However, he warned: "If we interpret these employment data like the bond market is and think we need to stimulate the economy through loose monetary policy, the result may not create more jobs but instead push up inflation."
In contrast, the long-term Treasury market reacted much more moderately. The yield on the 10-year Treasury bill fell as low as 4.229% during the day, a single-day drop of its largest since early April; the yield on the 30-year Treasury bond only fell by 0.0077 percentage points.