US Treasury yields were little changed, as market participants remained cautious ahead of US labor market data that could bolster the case for the Fed to cut interest rates.
The yield on 5-year Treasury bonds fell by 0.6 basis points, reaching 4.303%, while the yield on 30-year bonds was 4.521% (+0.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 0.6 basis points to 4.685%, while the yield on 10-year bonds fell to 4.344% (-0.2 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 34 basis points.
The key event on Friday will be the publication of the nonfarm payrolls report for June (at 12:30 GMT). The number of people employed increased by 272 thousand in May, which is almost 100 thousand more than economists expected. Although significant job growth has coincided with overall economic resilience to the Fed's tightening cycle, the strong performance in recent months masks some more general signs of a cooling labor market. The continuing decline in the number of vacancies and the deterioration in the perception of job availability suggest that the demand for labor is not the same as it was a year or two ago. Additional weakening was reflected in the increase in the unemployment rate to 4.0% in May, which is the highest since January 2022, and the continued increase in the number of applications for unemployment benefits. The data also showed that two-thirds of the increase in nonfarm payrolls over the past year came from just three industries: government and healthcare, which are less sensitive to cyclical conditions, as well as the leisure and hospitality sector, which is still trying to find its footing after the pandemic. These industries are likely to continue to make significant contributions in the short term, but the weakening of favorable factors may lead to a decrease in overall job growth in the coming months. Economists expect that 190 thousand new jobs were added in June, the unemployment rate remained at 4%, and the average hourly wage increased by 0.3% over the month. Many investors hope that today's data will indicate that the labor market and the economy are cooling, which will increase the likelihood of the Fed easing monetary policy later this year. According to the CME FedWatch Tool, markets see a 8.8% probability of a 25 basis point rate cut at the Fed meeting in July, a 74.5% probability of a rate cut in September, and a 83.8% probability of monetary policy easing in November.