U.S. Treasury yields moved lower on Monday, extending their recent decline after softer labor market data changed investor expectations.
Bond traders reassessed the outlook for inflation and interest rates after last week’s weaker-than-expected payrolls report.
The benchmark 10-year Treasury yield slipped to around 4.45%, giving back part of its recent gains. Meanwhile, the more policy-sensitive 2-year Treasury yield fell to 4.11%.
This move suggested that markets are becoming more convinced the U.S. labor market is starting to cool.
Payroll Miss Lowers Rate Hike Bets
Government bond markets saw steady demand on Monday. Traders continued to unwind bearish positions after June’s nonfarm payrolls report came in below expectations.
The U.S. economy added just 57,000 jobs in June. This was the weakest increase in four months and well below forecasts of 110,000.
The unemployment rate unexpectedly fell to 4.2%. However, analysts said the decline was mainly due to a drop in labor force participation, which reached its lowest level since 2021.
Lower Oil Prices Support Bonds
A sharp fall in oil prices also helped support longer-term bonds.
Brent crude traded around $71.86 per barrel, as energy shipping disruptions eased and markets considered the possibility of higher OPEC+ output.
Lower oil prices helped reduce near-term concerns about energy-driven inflation. This gave fixed-income markets another reason to stabilize.
Focus Turns to Fed Minutes
Despite the pullback in yields, bond market gains remained limited. Investors are still uncertain about how high the Federal Reserve may ultimately take interest rates.
Markets are now focused on Wednesday’s release of the June FOMC minutes.
The minutes are expected to attract strong attention because they will offer one of the first major looks at policy discussions under newly appointed Fed Chair Kevin Warsh.
Warsh has previously called for changes to the way the Fed communicates with markets. As a result, investors will be watching closely for any signs of a shift in tone or policy direction.
European Bond Markets Stay Cautious
In Europe, Germany’s 10-year Bund yield moved slightly lower after recently reaching a two-week high of 2.95%. It hovered near 2.91% on Monday.
The shorter-dated 2-year German yield remained mostly steady. This reflected a quiet start to an important week for interest rate expectations in the Eurozone.
ECB Speakers and Data in Focus
Investors will also monitor several European Central Bank speakers this week, including ECB President Christine Lagarde and chief economist Philip Lane.
Markets are also waiting for key Eurozone data releases. These include retail sales, producer prices, and German industrial output for May.
The figures could help show whether the Eurozone manufacturing sector is beginning to recover.
