Bonds got a reprieve on Thursday from softer-than-expected jobs numbers that snuffed out a nascent selloff and trimmed Federal Reserve rate forecasts for the summer.
The noisy June payroll report -- 57,000 new hires, less than half of Wall Street's forecast, and 74,000 jobs pared off the April and May tallies -- came during a notable bond selloff that lifted benchmark 10-year Treasury note yield past 4.5% in early trading.
That had investors set up for a strong June reading while the Fed navigates rates under new Chairman Kevin Warsh and inflation stays sticky despite the pull back in crude prices and the peace talks between the U.S. and Iran.
That reset, which included 30-year bonds topping the 5% threshold, suggests a nervousness heading into the year's second half about the Fed's rate path -- Warsh has made clear he's not showing his cards -- and broader market signals pointing to prices that will keep climbing.
Thursday's data snuffed that out -- for now -- but larger questions remain.
The jobs reading "takes away some worry about rate hikes, but steady wage gains and easing unemployment reflect a very healthy labor market," said David Russell, global head of market strategy at TradeStation.
"The weak hiring likely reflects trouble finding workers more than lack of demand by businesses," he added. "This creates an increasingly positive environment for consumers going into the second half."
Digging deeper shows that "effectively all of the net job creation has been in healthcare and social assistance" over the past 18 months, according to economist Justin Wolfers, "while the rest of the economy lost 229,900 jobs."
The initial market reading, though, was undoubtedly positive.
Benchmark 10-year note yields, which jumped to as high as 4.52% immediately after the jobs release, eased to 4.471%. Fed-sensitive 2-year notes fell 4 basis points to 4.13% as traders backed away from bets on rate rikes in the summer. Stocks were rallying as well.
Stephen Coltman, head of macro at 21Shares, is even talking about a change in Fed rhetoric under Warsh.
"Inflation expectations have collapsed and the current policy setting is becoming increasingly restrictive as a result," Coltman said. "This sets up a dovish pivot for the Fed later in the year and should be supportive for 'debasement' trades in precious metals and crypto that have suffered from the Fed's hawkish stance."
Warsh, at a central banking forum in Portugal on Wednesday, offered little insight in his first comments on the global stage -- except about bonds.
The chairman spoke volumes about how the bond market will probably behave under his leadership.
"I want us to have a good family fight when we meet in four weeks," he said of the Fed's next meeting in July. "There's a lot of late breaking news on a series of [economic and inflation data], and we get into that room and shut the door, we're going to have a good debate."
Warsh's determination to stay quiet on rates, will stoke Treasury volatility while all the jobs, inflation, and economic survey data gets sorted out.
However, the chairman of few words could conversely support the stock rally, which lost steam in June but still managed the strongest quarterly gain in six years thanks to roaring gains for AI chip stocks and the late pullback in crude.
"Nothing in this report argues for higher rates," said Jason Pride, chief of investment strategy at Glenmede.
"The inflation impulse that kept the Fed on hold has been energy-driven so far, a pressure that should fade as post-ceasefire oil price declines feed through to headline inflation in the coming months," he added.
"Should that play out alongside a labor market holding at this lower gear, the Fed may find itself in a position to cut rates later this year."
Write to Martin Baccardax at martin.baccardax@barrons.com
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(END) Dow Jones Newswires
July 02, 2026 10:59 ET (14:59 GMT)
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