Treasury yields drop after surprise jobs loss in July

Treasury yields fell Friday after data showed the U.S. economy unexpectedly lost 23,000 jobs in July, raising fresh concerns about the labor market while dimming the immediate outlook for higher Fed interest rates.

The yield on the 10-year U.S. Treasury note — the main benchmark for mortgages, auto loans and credit card debt — was off by more than 3 basis points at 4.639%.

The yield on the 2-year Treasury note, which more closely follows short-term Federal Reserve rate expectations, slipped more than 5 basis points to 4.193% and hit the lowest level since July 17. The 30-year Treasury yield slipped 2 basis points to 5.192%.

One basis point equals 0.01 percentage point, and yields and prices move inversely.

Nonfarm payrolls fell by a seasonally adjusted 23,000 for the month. The Dow Jones consensus forecast had been looking for a gain of 83,000.

The unemployment rate slipped to 4.1%, against Wall Street expectations it would stay unchanged at 4.2%, while the labor force participation rate fell to 61.4%, its lowest level in more than five years and down from 61.5% in June.

"Friday's jobs report was not just much weaker-than-expected, it showed that the economy shed jobs during July, which puts the Federal Reserve in a conundrum, since inflation is still elevated and sticky," said Brent Wilsey, chief investment officer at Wilsey Asset Management.

The report complicates the outlook for the Federal Reserve, where policymakers are divided over the path for interest rates. The labor market in the spring had been showing signs of improvement after a sluggish 2025, even as inflation remained well above the central bank's 2% target.

Following the jobs report, traders dialed back expectations for a rate hike at the central bank's next policy meeting in September. The odds that the Fed will raise rates next month fell to about 42%, while the probability of a hike by October stood at more than 57%, according to CME Group's FedWatch tool.