Yields Plummet on Weak Jobs Report

US Treasury yields dropped on Friday after data showed that employers unexpectedly shed 23,000 jobs in July, prompting traders to cut their odds of a Federal Reserve interest-rate hike in September.

Economists polled by Reuters had predicted employers would add 80,000 jobs last month. The unemployment rate fell to 4.1% as labor participation dropped, defying expectations for it to remain steady at 4.2%. Average hourly earnings rose 3.2% on the year, below consensus for a 3.5% increase.

Tom di Galoma, managing director of global rates trading at Mischler Financial Group, said 'If you look at all the data components, wages, (nonfarm payrolls), this is a very weak labor market that's all of a sudden happened.' He added 'It takes the Fed off the hiking table.'

The 2-year note yield fell 4.35 basis points to 4.202%, reaching its lowest since July 17. The yield on benchmark U.S. 10-year notes dropped 1.44 basis points to 4.656%. The yield curve between 2- and 10-year notes steepened to 46 basis points.

Fed funds futures traders are now pricing in a 44% chance of an interest-rate hike at the Fed's September meeting, down from 55% before the data. They still see a 77% probability by December.