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Treasury yields rose Friday, reversing initial declines that followed a September employment report far weaker than economists expected. The disappointing labor figures appeared likely to restrain the Federal Reserve from raising interest rates at its October meeting.

The benchmark 10 year Treasury yield climbed 2 basis points to 5.26%. Earlier in the week, the yield had reached its highest level since 2002, highlighting the persistent upward pressure across the government bond market.

Longer dated and rate sensitive Treasurys also moved higher. The 30 year Treasury yield added 1 basis point to reach 5.619%, while the 2 year Treasury yield rose more than 3 basis points to 4.818%.

The 2 year yield is considered the most sensitive to Federal Reserve policy moves. One basis point equals 0.01%, and Treasury yields move in the opposite direction from prices.

The reversal followed the release of employment figures showing that nonfarm payrolls increased by only 29,000 in September. Economists surveyed by Dow Jones had forecast an increase of 84,000, leaving the reported gain well below expectations.

The unemployment rate also moved in the wrong direction, rising to 4.2% from 4.1%, according to the Bureau of Labor Statistics. Economists had expected the rate to remain unchanged.

August employment growth was revised lower as part of the report. The updated figures showed that the economy added 133,000 jobs during that month.

Yields initially fell as traders reacted to the weak September payroll gain and the increase in unemployment. As Friday’s trading session continued, however, yields recovered and ultimately returned to positive territory.

That reversal suggested investors did not view the employment report as enough to decisively change the Federal Reserve’s broader policy path. Timothy Chubb, chief investment officer at Girard Advisory Services, said the later market move was appropriate.

“I think that’s the right move because I don’t think this report necessarily changes the story for the Fed,” Chubb said. “I still think the trajectory from here is higher for longer.”

Expectations for the October meeting nevertheless shifted toward no change in interest rates. Traders placed a 78% probability on the Federal Reserve holding rates steady at that meeting, according to the CME Group’s FedWatch tool.

Even with those expectations, traders continued to see a high likelihood that policymakers would approve another increase at the December meeting. The employment slowdown therefore reduced the immediate odds of a rate increase without convincing markets that the cycle was finished.

Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, also said an October increase appeared unlikely. At the same time, she indicated that the Federal Reserve may not have completed its series of rate increases.

“Today’s soft print argues against the idea that the labor market is retightening,” Rosner said. “One follow-up hike in December remains our base case; however, continued pressure by markets and moves higher in energy prices could force the Fed’s hand this month as well.”

The action in Treasurys followed a sharp selloff in global government bonds earlier in the week. Pressure eased elsewhere Friday, with 10 year yields across major European economies falling by around 3 basis points.

The recent climb in government bond yields has reflected investor concerns about stubborn inflation and hawkish commentary from central banks. Those concerns have fueled expectations that interest rates could remain elevated for longer, despite the latest evidence of weaker employment growth.

Friday’s moves left markets weighing two competing signals from the same session. September hiring was substantially weaker than forecast, but Treasury yields still finished higher as investors maintained expectations that another Federal Reserve rate increase could remain on the table for December.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.