U.S. Treasury yields surged to a 24‑year peak of 5.34% on the first trading day of October, marking the steepest quarterly rise in 32 years. The bond sell‑off has drawn some buyers back, with yields between 5.25% and 5.35% now seen as attractive entry points for long‑term investors.
Will bonds rally again?
The key question for traders is whether the market can sustain a second‑day rally. The last two‑day rebound occurred a month ago and quickly lost momentum. Since late August, yields have moved in only one direction—upward.
Asian yields and the payroll outlook
In Asia, the 10‑year Japanese government bond yield nudged higher by two basis points to 5.2470%. All eyes are on the September non‑farm payroll report, which forecasts a solid gain of 90,000 jobs, though estimates range from 35,000 to 180,000, leaving room for surprise. The unemployment rate remains steady at 4.1%, with some analysts noting a potential dip to 4.0% as workforce growth slows and participation stays soft.
Labor‑cost pressures
Average hourly earnings will be a critical gauge of cost pressures in the labor market. The ISM factory survey already showed a sharp rise in the prices‑paid component, suggesting firms may be passing higher costs onto consumers.
Fed expectations
Markets continue to price in a second Federal Reserve rate hike before year‑end, even though the probability of an October move has fallen to about 25%. Two senior Fed officials this week emphasized the need for more data before deciding on the next step, but they also signaled that any future move is likely to be upward.
European backdrop
The overnight Treasury rally may have been aided by turmoil in European markets. France’s much‑anticipated budget failed to calm investor concerns about its fiscal path, widening the French‑German yield spread to over 140 basis points—the widest since 2012. The euro weakened, slipping 1.3% against the Swiss franc, its worst day since April 2025, erasing much of a 2.5% gain recorded in the previous quarter and unwinding a crowded carry trade.
Eurozone inflation and the dollar
Eurozone inflation data could pose a further challenge for bonds if numbers come in on the high side. Meanwhile, the U.S. dollar remains near a 17‑month high, buoyed by euro weakness, and is set for a third consecutive weekly rise of 1.1% after recovering from earlier debasement concerns.
Other market moves
Asian equities were mostly lower, while European bourses prepared for a softer open, with pan‑region stock futures down 0.1%. Nasdaq futures, however, rose 0.4%.
Commodities and geopolitics
Heading into the weekend, Brent crude held steady around $102 a barrel as the United States reportedly deployed additional troops and a carrier to the Middle East. China also suspended oil‑product exports, raising fears of tighter global supplies of diesel and jet fuel.
Key developments to watch on Friday
- Eurozone flash CPI data for September
- U.S. non‑farm payroll report for September
Investors will be closely monitoring these releases for clues on the trajectory of inflation, labor‑market strength, and the Federal Reserve’s next policy decision.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
