US 10-year yields fall to six-week low after payrolls, markets see green light to December cut

NEW YORK – US Treasuries yield fell to a six-week low after the release of November payrolls data, as investors considered the numbers as a green light to one more rate cut by the Federal Reserve on its December 17-18 meeting.

The yield on the benchmark US 10-year Treasury note fell 3.3 basis points to 4.149%. The front end of the curve had a sharper drop, with the two-year  US Treasury yield falling 5 basis points to 4.096%.

The yield on the 10-year note fell to 4.126% during the session, its lowest since Oct. 21, while the 2-year yield slumped to 4.077%, a level not seen since Nov. 1.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB steepened after to 5.1 points. Just before the payrolls release, the yield curve inverted to negative 7.1 basis points, the lowest in three months.

Odds of a 25-basis points rate cut in the December meeting jumped to 89% on Friday, up from 70% late on Thursday, according to the CME’s FedWatch Tool.

“It looks like there’s no reason to worry about an imminent recession and there’s no reason for the Fed to take a pause on cuts quite yet,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Nonfarm payrolls increased by 227,000 jobs last month after rising an upwardly revised 36,000 in October, the Labor Department said in its closely watched employment report on Friday. But it did not seem to signal a material shift in labor market conditions.

“Data this morning was a Thanksgiving buffet with payrolls spot on, revisions positive, but unemployment ticking higher despite the participation rate falling. This print doesn’t kill the holiday spirit and the Fed remains on track to deliver a cut in December.”, said Lindsay Rosner, head of multi sector investing at Goldman Sachs Asset Management.

Ellen Zentner, chief economic strategist at Morgan Staney Wealth Management said although the economy is still producing a healthy amount of job and income gains, “a further increase in the unemployment rate tempers some of the shine in the labor market and gives the Fed what it needs to cut rates in December.”

The 10-year yields fell 4.4 basis points this week and the 2-year yields, 7.6 basis points.

Despite rising expectations the central bank will cut rates at its upcoming meeting, Federal Reserve Governor Michelle
Bowman said inflation risks to the economy remain real and labor market data hard to interpret, and that requires caution with further decisions on central bank rate cuts.

In addition, Chicago Federal Reserve Bank President Austan Goolsbee remained noncommittal on whether he would support an interest rate cut at the central bank’s meeting this month, but reiterated to his view that interest rates will fall over the next 12 months.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.340% after closing at 2.369% on December 5.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer, Chuck Mikolajczak, Davide Barbuscia and Lawrence Delevigne
Editing by Mark Potter and Nick Zieminski)