Treasury yields fall as jobs report dashes hike bets

The 2-year note yield, which typically moves in step with Fed interest-rate expectations, fell 4.35 basis points to 4.202% and reached 4.1536%, the lowest since July 17.

The yield on benchmark U.S. 10-year notes fell 1.44 basis points to 4.656%.

The yield curve between 2- and 10-year notes steepened to 46 basis points.

Fed funds futures traders are now pricing in 44% odds of an interest-rate hike at the Fed’s September meeting, down from 55% before the data. They nonetheless are maintaining bets on a rate increase this year, seeing a 77% probability by December.

The labor market has remained a relatively bright spot in the U.S. economy, even as concerns mount over stubbornly high inflation — a risk that could intensify if the Iran conflict continues driving oil prices higher.

A weakening jobs picture could shift expectations toward a more dovish Fed policy stance. Consumer price inflation data for July due next week, however, may further complicate the picture if it shows worsening price pressures.