Treasuries: US Treasury yields slipped on Wednesday after fresh data signaled a slowdown in the American labor market. The weaker-than-expected July report on job openings and layoffs prompted traders to nearly fully price in a Federal Reserve interest-rate cut this month, shifting sentiment across global bond markets.

🔎 What Happened?

The Job Openings and Labor Turnover Survey (JOLTS) showed:

• 📊 Job openings declined more than analysts expected.
• ❌ Layoffs rose, surpassing survey estimates.

This combination suggested a softer employment landscape, raising the odds that the Fed will ease monetary policy soon.

Traders responded swiftly:

• Contracts tied to Fed moves priced in 95% odds of a quarter-point rate cut in September.
• Markets increased bets on two or more cuts before year-end.

📉 Bond Market Reaction

The new expectations put a halt to a recent selloff in long-term Treasuries.

• The 30-year bond yield, which had climbed to just below 5% (a two-month high), retreated after the report.
• The two-year note yield slipped to 3.60%, its lowest level since early May.

This marked a sharp turnaround, reflecting traders’ belief that cooling labor trends could ease pressure on the Fed to keep policy tight.

🏦 Fed’s Next Move in Focus

Markets are now watching the August jobs report, due Friday, as the next big trigger.

“The expectation is that the Fed is going to move in September, and the Friday data is important,” said Gargi Chaudhuri, Head of Investment Strategy at BlackRock. “For policymakers to do something other than a quarter-point cut, the data would need to be very strong or very weak.”

In July, most Fed officials signaled that keeping rates in the 4.25%–4.5% range was appropriate. But that was before recent signs of a cooling labor market.

Notably:

• Fed Governor Christopher Waller, a frequent advocate for cuts, said on CNBC that he supports easing at the Sept. 16–17 meeting, with room for more reductions later this year.
• St. Louis Fed President Alberto Musalem reiterated his view that current policy settings were adequate, but that was before the JOLTS report landed.

🌍 Global Bond Market Pressure

The US is not alone in experiencing bond volatility. Yields have also risen in:

• 🇬🇧 United Kingdom – investors demanding higher returns amid fiscal concerns.
• 🇯🇵 Japan – yields hit their highest levels this century as selling pressure deepens.

The common theme: investors are asking for greater compensation to lend to governments, reflecting worries about rising debt and persistent inflation.

💸 US Fiscal Challenges

America’s fiscal position is a growing concern:

• The Trump administration’s spending and tax cuts are projected to widen deficits unless tariff revenues grow meaningfully.
• A recent court ruling has cast doubt on the durability of those revenues.

Bond investors are increasingly wary, demanding higher yields on long-dated debt as protection against fiscal slippage.

🏛️ Fed Independence at Stake?

Another layer of uncertainty comes from politics. Analysts say President Trump’s push for rate cuts and attempts to exert influence over the Fed could:

• 🔺 Push up long-term yields (as investors demand compensation for potential inflation).
• 🔻 Anchor short-term yields (tied directly to Fed policy).

This dynamic has widened the gap between short- and long-term yields, creating one of the most unusual yield-curve patterns in years.

📊 Market Positioning Shifts

Recent investor moves have amplified the swings:

• JPMorgan’s client survey showed traders reduced long positions and added shorts.
• CME Group futures data echoed this shift, suggesting many investors were betting against Treasuries before the jobs data surprise.

The sudden turn in labor market signals forced some of these positions to unwind, boosting bond prices and driving yields lower.

🧩 Expert Views

• Ella Hoxha, Head of Fixed Income at Newton Investment Management, said: “The signal is quite clear that there is no appetite for the long end. The risk is that demand could weaken further.”
• BlackRock strategists, including Wei Li, highlighted that the current wide spread between short- and long-term yields shows investors want greater compensation for holding bonds that stretch decades into the future.

📅 What’s Next?

All eyes are now on:

• Friday’s August jobs report – a crucial data point that could confirm or challenge expectations for a September cut.
• The Fed’s Sept. 16–17 meeting – where markets now expect a quarter-point reduction, with room for more easing later this year.

If labor data weakens further, the Fed could be forced into a faster pace of cuts, but if numbers surprise to the upside, policymakers may stick to a slower path.

⚖️ The Bottom Line

The bond market is in a delicate balance. A softer US labor market has tipped the scales toward imminent Fed cuts, pulling yields lower and arresting a selloff that pushed long-term rates to multi-month highs.

But risks remain:

• ⚠️ US fiscal concerns.
• ⚠️ Political pressure on the Fed.
• ⚠️ Global inflation trends.

The coming weeks will be pivotal in shaping the outlook for Treasuries, Fed policy, and broader financial markets.