10-year Treasury yield briefly dives below 4.5% as unemployment rate rises to 3.9%

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U.S. Treasury yields dropped on Friday after April’s jobs report showed weaker-than-expected payrolls growth and an unexpected tick higher in the unemployment rate.

The yield on the 10-year Treasury was off by about 7 basis points to 4.5%. The 2-year Treasury yield was last 6 basis points lower to 4.814%. Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.

U.S. payrolls expanded by just 175,000 last month, the Bureau of Labor Statistics said on Friday, short of the Dow Jones estimate from economists of 240,000. The unemployment rate rose to 3.9%, against an estimate that called for it to hold steady at 3.8%. Wage growth was also less than expected, the report showed.

The Federal Reserve earlier this week kept interest rates unchanged, in line with expectations. Policymakers noted that “it will not be appropriate to reduce the target range until [the Federal Open Market Committee] has gained greater confidence that inflation is moving sustainably toward 2 percent.”

However, Fed Chief Jerome Powell did acknowledge that a weakening labor market could cause the central bank to act, citing its dual mandate of stable prices and max employment.

“We’re also prepared to respond to an unexpected weakening in the labor market,” Powell said on Wednesday.

Uncertainty about how many rate cuts, if any, will take place this year and when they might begin has grown in recent weeks, with many investors now expecting fewer cuts and not until later in the year.

Friday’s weak labor report could allow the Federal Reserve to move sooner to cut rates.

“Powell said they were giving higher interest rates longer to work to bring inflation down closer to target, and now it looks like that was the right call,” said Chris Rupkey, chief economist at FWDBONDS. “Fed policymakers are keeping their fingers crossed that a soft patch in the labor market will lead to reduced price pressures in the second quarter.”

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