US Treasury bond yields are showing negative dynamics, while market participants are assessing the latest data on the US labor market and their impact on the prospects for the Fed's monetary policy.
The yield on 5-year Treasury bonds fell by 4.4 basis points, reaching 2.93%, while the yield on 30-year bonds was 3.038% (-2.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 4.1 basis points to 3.207%, while the yield on 10-year bonds fell to 2.799% (-4.1 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 41 basis points.
On Friday, the Labor Department reported that the nonfarm payrolls jumped by 528,000 last month, surpassing all estimates and showing the largest increase in five months. Meanwhile, the unemployment rate fell to 3.5% (5-year low), while average hourly earnings growth accelerated to 0.5%. The average estimates of economists assumed an increase in the number of employed by 250,000 people, maintaining the unemployment rate at 3.6% and an increase in average hourly earnings by 0.3%.
The latest data on the labor market indicated the continued steady demand for labor in a number of industries, despite growing concerns about the economic downturn. Market participants believe that they can give Fed policymakers a reason to continue their aggressive approach to monetary policy against the background of extremely high inflation. Analysts expect that the Fed will consider raising the rate by 0.75% at its next meetings.
Later this week, US inflation data will be in the focus of investors' attention (to be released on Wednesday). The consumer price index is expected to have risen by a relatively insignificant 0.2% after an increase of 1.3% in June. But the sharp slowdown in July will be mainly due to lower energy prices. The core index, which does not include food and energy, is expected to slow more modestly and grow by 0.5% compared with 0.7% in June, which will serve as a reminder that inflation is unlikely to go away quietly. While price pressures on goods in general are easing as spending shifts towards services and supply chain tensions ease, service sector inflation shows little sign of slowing.