U.S. Treasury yields fell sharply as weak employment data sparked market bets on the Federal Reserve accelerating interest rate cuts

According to Zhitong Finance APP, on Friday, U.S. Treasury yields plummeted sharply as investors widely anticipated that the Federal Reserve would be forced to implement larger rate cuts to support a clearly slowing job market. The latest non-farm payroll report for August showed that the U.S. labor market has stagnated for four consecutive months, and the June data was unusually revised downwards, unexpectedly indicating a net decrease in jobs for that month.

George Catrambone, Head of Fixed Income Americas at DWS, stated, "The market had not priced in this negative outcome, especially as the latest revisions show that many job categories, excluding healthcare, experienced negative growth in the first half of this year, which caught the market off guard."

In response to the employment report, both short-term and long-term U.S. Treasury yields fell sharply, with the 2-year Treasury yield dropping 11.5 basis points to 3.506%, marking a one-year low; the 10-year Treasury yield declined 14.2 basis points to 4.085%, the lowest level since April 4.

Kathy Bostjancic, Chief Economist at Nationwide, stated, "As the job market continues to weaken, we maintain our forecast of a cumulative rate cut of 75 basis points by the end of this year." She pointed out that the key issue now is the number and magnitude of future rate cuts.

According to the CME FedWatch tool, the market currently expects a 10.2% probability of a 50 basis point cut (a significant cut) at the September meeting, a sharp increase from 0% a day earlier; the probability of a conventional 25 basis point cut is 89.7%. This reflects that the market is rapidly re-pricing.

Steve Englander, Head of Global FX Strategy at Standard Chartered, suggested earlier this week that the Federal Reserve should consider implementing a significant rate cut this month, as the market and policymakers may have underestimated the severity of the labor market weakness.

Jeffrey Schulze, Head of Economic and Market Strategy at ClearBridge Investments, pointed out that the "standstill" in the job market has once again brought potential recession risks to the forefront. He noted that investor sentiment was relatively optimistic in early trading on Friday, but as the data was digested, the market gradually incorporated weak growth and lowered corporate earnings expectations into prices.

Schulze believes, "In the long run, this is more like a temporary adjustment in the stock market, presenting a 'buy the dip' opportunity." He expects that by 2026, as Trump's signature tax cuts and fiscal stimulus policies gradually take effect, along with clearer rate cuts and tariff policies from the Federal Reserve, the stock market will return to an upward trajectory.

Earlier this week, fluctuations in bond market yields had put pressure on the stock market.

During Friday's trading, the S&P 500 and Nasdaq indices briefly reached new highs but retreated towards the end of the session. By the close, the Dow Jones Industrial Average fell 0.48%, the S&P 500 dropped 0.32%, and the Nasdaq index edged down 0.03%.

Market participants indicated that as employment data weakens and rate cut expectations rise, investors are reassessing corporate earnings and economic growth prospects. Short-term volatility is intensifying, but the support from rate cuts and fiscal policies may provide upward momentum for the stock market in 2026