US Nonfarm Payrolls Miss Estimates, 10-Year Treasury Yields Rebound Sharply

The US nonfarm payrolls rose by only 29,000 in September, falling short of the expected 90,000. This lower-than-expected figure led to a brief dip in the 10-year Treasury yield before it rebounded over 10 basis points to 5.30%, staging a V-shaped reversal.

The jobs report caused economists to reassess their expectations for near-term rate hikes and had a mixed impact on long-term yields, which continue to be driven by inflation, fiscal supply, and term premiums.

Despite the disappointing nonfarm payrolls, the 2-year Treasury yield fell 10 basis points in a single day to 4.69%, with S&P 500 futures rising 0.8% and Nasdaq 100 futures gaining 1.1%. The CME FedWatch Tool showed the probability of an October rate hike dropped from 22% to 17%.

However, the 10-year yield rapidly rebounded from its daily low of 5.16%, rising to 5.30% by midday and nearing the 5.34% high set on Thursday, the highest level since 2002. The divergence between short- and long-term trends points to the same conclusion: weak nonfarm payrolls have lowered short-term interest rate expectations, but inflation, fiscal supply, and term premiums continue to firmly support long-term yields.