The U.S. Treasury yields dropped on Friday following the release of April’s jobs report, which revealed weaker-than-expected payrolls growth and an unexpected increase in the unemployment rate. The yield on the 10-year Treasury fell by approximately 7 basis points to 4.5%, while the 2-year Treasury yield decreased by 6 basis points to 4.814%. Yields and prices move in opposite directions, with one basis point equivalent to 0.01%.
According to the Bureau of Labor Statistics, U.S. payrolls only grew by 175,000 in April, falling short of the economist estimate of 240,000. The unemployment rate also increased to 3.9%, compared to the anticipated 3.8%. Additionally, wage growth was lower than expected. The Federal Reserve maintained interest rates unchanged earlier in the week, in line with expectations, and suggested that it will not consider reducing the target range until there is more confidence that inflation is moving towards 2 percent sustainably.
Fed Chief Jerome Powell acknowledged the possibility of the central bank taking action in response to a weakening labor market, reaffirming its dual mandate of ensuring stable prices and maximum employment. The uncertainty surrounding the number of rate cuts expected this year and their timeline has intensified in recent weeks, with many investors predicting fewer cuts and a delay until later in the year. The underwhelming labor report on Friday could prompt the Federal Reserve to act sooner in reducing rates to support the economy.
Chris Rupkey, chief economist at FWDBONDS, noted that Fed policymakers are hopeful that allowing higher interest rates to work longer will help bring inflation closer to the target. The expectation now is that a soft patch in the labor market could alleviate some price pressures in the second quarter. Powell’s remarks about the importance of monitoring the labor market and its potential impact on inflation suggest that the Federal Reserve is prepared to respond promptly to any unexpected developments. Overall, the focus remains on navigating the complex economic landscape and making strategic decisions to maintain stability and support growth.
