By Serafino Tobia, Director of Agency CMBS Trading and Portfolio, Greystone
- The 10-year Treasury yield is currently 4.20%, 19 basis points lower since last Monday morning with a trading range of 21 basis points (4.20% - 4.41%) this past week.
- 2-year Treasuries are at 3.68% this morning, 24 basis points lower since last Monday.
A big move in yields came after the jobs report Friday morning. 10-year bonds traded in a relatively narrow range until Friday and gapped 18 basis points lower, closing at 4.22% at the end of trading. The non-farm payroll rose by just 73k, short of the 104k expected by the market. However, more importantly, and what precipitated the bullish sentiment, job growth for the previous two months (June and May) was revised downward by 258k. According to revised data, only 14,000 new jobs were added in June and only 19,000 in May. Previously, 147,000 and 144,000, respectively.
Economic Data Week of July 28 – August 1 2025
Friday’s employment report dominated the market’s focus this past week, as evidenced by the movement in bond yields discussed above. Aside from the jobs report, the data was mixed: the PCE index indicated persistent inflation, and the stronger-than-expected 3% annualized Q2 GDP print were both bearish for bonds. However, there were some bond-friendly data—soft consumer sentiment, weaker ISM manufacturing, and a slight easing in the JOLTS job openings report.
Soft Data (Surveys)
- ISM Manufacturing PMI (July): Printed at 48, the fifth month in a row below 50 (contraction territory).
- Conference Board Consumer Confidence (Jul): 97.2, higher than consensus 96, rebounding from 95.23 in June, as revised.
- University of Michigan Consumer Sentiment (July) printed at 68 versus 66.8 last month. U Mich consumer inflation expectations for the next year printed at 4.5%. Consumer expectations for 5–10-year inflation printed at 3.4%. U Mich inflation expectations are markedly lower than a few months ago but still elevated versus the Fed’s 2% inflation target.
- Dallas Fed Manufacturing Activity (July): The Texas manufacturing conditions index climbed modestly to 0.9 from −12.7 in June.
Hard Data
- GDP Q2 advance read: +3% annualized, rebounding strongly in Q2 after Q1 -0.5% contraction.
- JOLTS Job Openings (June): Remained at ~7.437 million, incrementally lower than May (7.712 million, as revised)
- ADP Employment Report (July): Private‑sector jobs rose by 104,000, rebounding after -23k last month, as revised
- Weekly Initial Jobless Claims: 218,000. The 4-week moving average at 221,000, reflects a stable labor market.
- PCE Inflation Index: Core PCE rose 0.3% for the month, highest since February. Year‑over‑year core inflation remains above target at 2.8%.
- US Employment Report (July): Nonfarm payrolls increased by 73,000 (below consensus), alongside large downward revisions to May/June net gains as discussed above. Unemployment rose from 4.1% to 4.2% (4.248% unrounded to 3 digits; in other words, had the unemployment rate printed just 0.002% higher, the quoted unemployment rate would have been 4.3%).
Fed Monetary Policy: 87% Probability of a ¼ point rate cut on September 17th
The Fed’s FOMC met last Tuesday/Wednesday and as expected, did not change interest rates, leaving the target Fed Funds rate as 4.33% (4.25% - 4.50% range). During the press conference, Fed Charman Powell indicated that the labor market remains healthy with balanced supply and demand and while tariff-induced inflation could be brief and a one-time occurrence, there remains concern that the tariffs put further pressure on wages and inflation. Two Fed governors (Michelle Bowman and Christopher Waller) dissented and argued for a quarter point rate cut. Bowman commented that a 0.25% cut would acknowledge the softening in the economy and proactively hedge against further weakening and forestall damage to the labor market.
The Fed - Live Video – link to Fed Chairman Powell Press Conference, 7/30
Last Wednesday, the FOMC didn’t have the benefit of Friday’s weaker jobs report and at this point, we can only speculate whether it would have made a difference. The yield curve implies 0.609% in rate cuts by year-end. The market is now expecting the first ¼ point rate cut at the meeting on September 17th. The yield curve also implies an additional 0.76% in rate cut in 2026 (a little more than three more ¼ point cuts), with the Fed Funds rate moving down to 2.975% by YE 2026.
My Take on Longer Term Yields
The bond rally that started after Friday’s jobs report is likely to continue. I’ve commented in the past that the data needs to provide evidence of weakness in the labor market before we should expect yields to improve. Well, with the large revision in job growth, we got the weak jobs data on Friday. If economic softness continues—fueled by trade uncertainty and tariff effects, yields should move toward 4%. For the rally to hold, markets must also treat tariff-driven inflation as transitory.
With the revisions to the data from May and June, we learned that job creation has been weak now for the past three months. Low job growth with the unemployment rate remaining relatively solid (4.2%) reflects employers’ hesitance to hire and workers are increasingly disengaged, likely as a result of the uncertainty about the economy and trade due to the administration’s tariff policies.
Most country-specific reciprocal tariffs have now taken effect (as of August 1), with import duties ranging from 10% to 50% based on the origin of goods. There will be an impact on prices (i.e., inflation) and consumer demand, but the full impact is likely to lag and the economic data may not fully reflect the tariffs until the fourth quarter of the year.