Treasury Yields Hold Steady After Surprise Jobs Report, Inflation Data in Focus

U.S. Treasury yields stabilized in a narrow range on Monday, pausing a sharp downward move from the previous session that was triggered by a surprisingly weak employment report. Fixed-income markets are now in a holding pattern as investors await key inflation figures later in the week for fresh clues on the Federal Reserve's policy path.

Markets Consolidate After Rally

Bond yields held near multi-week highs at the start of the week following Friday's significant volatility. The price action reflects a market reassessing positions after the jobs data roiled expectations for monetary policy.

Key U.S. Treasury yields on Monday were:

• The policy-sensitive 2-year note yield edged slightly higher to 4.226%.
• The benchmark 10-year note yield was little changed at 4.66%.
• The 30-year bond yield remained stable at 5.206%.

A modest rebound in crude oil, with Brent futures approaching $84 per barrel amid uncertainty over shipping in the Strait of Hormuz, provided some underlying support for borrowing costs, reminding traders of potential energy-driven inflation risks.

Fed Expectations Shift on Jobs Data

The catalyst for last week's rally in bonds was a U.S. labor market report showing the economy unexpectedly lost 23,000 jobs in July. This result prompted traders to quickly scale back bets on further Federal Reserve interest rate hikes.

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According to the CME FedWatch Tool, the market-implied probability of a rate hike at the Fed's September meeting has fallen to approximately 45%, down from nearly 70% before the jobs report. The data suggested that tighter monetary policy may be cooling the economy, reducing the need for additional tightening.

Inflation and Retail Sales Data Loom Large

Investors are exercising caution ahead of a packed economic calendar. The main event will be Wednesday's Consumer Price Index (CPI) report, which is expected to show core inflation rose 0.2% month-over-month in July, with the annual rate slowing to 2.5%.

This will be followed by the Producer Price Index (PPI) on Thursday and retail sales data on Friday. This slate of data will be critical for markets to determine whether the disinflationary trend is firm enough to allow the Federal Open Market Committee (FOMC) to keep interest rates on hold through the fall.

European Bonds Await Domestic Figures

In Europe, government bond yields also remained stable. Germany's benchmark 10-year bund yield was flat at 3.13%, while the interest-rate sensitive 2-year yield held steady at 2.74%.

European investors are awaiting a busy week of domestic data, including second-quarter GDP and employment figures for the eurozone, as well as final inflation prints from Germany, France, and Spain. These reports will help assess the resilience of the eurozone economy amid cooling inflation.