Longer-dated US yields dip as investors eye payrolls data

NEW YORK – Longer-dated US Treasury yields slid on Thursday before the government’s highly anticipated jobs report for July due on Friday, reversing a rise the previous session following less dovish comments from Federal Reserve Chair Jerome Powell.

Powell on Wednesday doused expectations of a rate cut at the next Fed meeting in September. In a press briefing after the Fed held rates steady, Powell said the Fed is focused on controlling inflation, not on government borrowing or home mortgage costs that President Donald Trump wants reduced. He added that the risk of rising price pressures from the administration’s trade and other policies remains too high for the central bank to begin loosening its “modestly restrictive” grip on the economy.

Thursday’s economic reports, led by the US personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, supported the US central bank’s patient stance in cutting interest rates. US jobless claims were also better than forecast, suggesting that the labor market was not falling off a cliff.

Federal funds futures, which are tied to the US central bank’s monetary policy, have priced in just a 39% chance of easing in September, compared with 65% before the Fed statement on Wednesday, according to the CME’s FedWatch.

“It’s really now just all about waiting for nonfarm payrolls tomorrow. And while the market might be pricing out the odds of a cut in September following Powell’s comments, it clearly remains comfortable with the idea that rate cuts are a matter of when, not if,” said Zachary Griffiths, head of investment-grade and macro strategy at CreditSights in Charlotte, North Carolina.

“Despite all of the macro volatility and intense focus on the data, we’ve really been in a fairly tight range recently with, let’s say the 10-year anchored around 4.4%, give or take a handful of basis points.”

US 10-year yields were last down 2 basis points (bps) on the day at 4.358%, but up 13 bps on the month. The two-year yield, which reflects interest rate expectations, rose 0.6 bps to 3.943%. It was up 22 bps so far for the month of July.

US 30-year yields were also lower on the day, down 2.7 bps at 4.886%, but up 11 bps this month.

The personal consumption expenditures (PCE) price index rose 0.3% last month after an upwardly revised 0.2% gain in May, the data showed. Economists polled by Reuters had forecast the PCE price index climbing 0.3% following a previously reported 0.1% rise in May. In the 12 months through June, the PCE price index advanced 2.6% after increasing 2.4% in May.

A separate report showed the number of Americans filing new applications for unemployment benefits increased marginally last week, suggesting that the labor market remained stable, though it is taking longer for laid-off workers to find new opportunities. Initial claims for state unemployment benefits rose by 1,000 to a seasonally adjusted 218,000 for the week ended July 26, data showed. Economists polled by Reuters had forecast 224,000 claims for the latest week.

Investors are now looking to Friday’s employment report, with Wall Street economists forecasting new jobs created at 110,000, down from 147,000 in June. The unemployment rate is seen edging up to 4.2% in July from 4.1% in the previous month.

Trade negotiations also remain a focus as Trump reaches some new trade deals and enacts more tariffs on trade partners.

Trump gave Mexico a 90-day reprieve from higher tariffs to negotiate a broader trade deal but was expected to issue higher final duty rates for most other countries as the clock wound down on his Friday deal deadline.

US appeals court judges sharply questioned on Thursday whether Trump’s tariffs were justified by the president’s emergency powers, as lawyers for states and businesses challenging the measures argued he exceeded his authority.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Karen Brettell; Editing by Matthew Lewis and Daniel Wallis)