US yields climb on strong jobs data; market prices out July rate cut

NEW YORK – US Treasury yields advanced on Thursday after data showed the world’s largest economy created more jobs than expected last month, supporting the Federal Reserve’s patient stance on cutting interest rates this year.

In afternoon trading, US two-year yields, which track interest rate expectations, rose 9.7 basis points (bps) to 3.888%, and up 14.6 bps for the week, its largest weekly rise since early April. The benchmark 10-year yield, on the other hand, gained 5.3 bps to 4.346%. On the week, the 10-year yield advanced 6.3 bps, on track for its largest weekly gain in roughly a month.

Volume has thinned, however, following the nonfarm payrolls report, with US bond markets closed on Friday for the July 4th holiday.

On the political front, Republicans in the US House of Representatives advanced President Donald Trump’s massive “One Big Beautiful Bill” toward a final yes-or-no vote on Thursday, overcoming internal party divisions over its cost.

The bill, if approved, would raise the debt ceiling by USD 5 trillion, which will allow the US Treasury to increase bill auction sizes in the coming weeks.

But Thursday’s jobs report was the market’s focus.

The report showed US nonfarm payrolls increased by 147,000 jobs last month after an upwardly revised 144,000 gain in May. Economists polled by Reuters had forecast payrolls rising 110,000 following a previously reported 139,000 gain in May.

The unemployment rate fell to 4.1% from 4.2% in May. Economists had expected the jobless rate to tick up to 4.3%.

The headline numbers, however, obscure weaker details of the report, analysts said.

Stan Shipley, fixed income strategist at Evercore ISI, pointed to state and local government employment accounting for 50% of the overall gain. He also added that private service job gains were only 68,000 and private goods producing jobs advanced just 6,000, while temporary employment slipped.

The odds of a July cut shrank to 4.7% after the jobs data, from about 25% before the report’s release. Chances of a September easing also dropped to 75%, compared with 98% just before.

There were only about 50 bps rate declines priced in 2025, from about 67 bps before the report.

“You look at it at the headline number level and conclude that the fears around the softer labor markets to this point have continued to be worse than the reality,” said Jim Baird, chief investment officer, at Plante Moran Financial Advisors in Southfield, Michigan.

“The job market appears to be hanging in there. I’d say that you have to look at the next layer of the data and when you see the pretty marked slowdown in job creation in the private sector, there is still a cautionary note there.”

The yield curve flattened after the data, with the spread between two-year and 10-year yields at 45.4 bps compared with 49.2 bps late Wednesday, as the bond market priced in a likely delay in Fed easing.

US Treasury Secretary Scott Bessent said if the Fed does not cut interest rates soon, any potential easing in September could be higher.

Other economic data on Thursday such as weekly jobless claims and services sector index showed a still solid economy. Initial claims fell to 233k in the last week of June, the lowest since mid-May, from 237,000 in the previous week, suggesting that the layoff rate remained low.

US services sector activity, on the other hand, picked up in June as orders rebounded, but employment contracted for the third time this year, underscoring the impact of policy uncertainty on businesses.

The Institute for Supply Management’s (ISM) non-manufacturing purchasing managers index (PMI) increased to 50.8 last month from 49.9 in May. Economists polled by Reuters had forecast the services PMI rising to 50.5.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Medha Singh in Bengalaru; Editing by Alex Richardson, Chizu Nomiyama, Nick Zieminski, and Cynthia Osterman)