The 10-year rose to 5.28% despite soft hiring, and auctions test it
Employers added 29,000 jobs in September, the 10-year yield still closed at 5.28% on Friday, October 2, and $119 billion of auctions fill the week of October 5 to October 9.
Key takeaways
Long-term Treasury yields rose last week even though hiring was soft. The 10-year closed Friday, October 2, at 5.28%, and the auctions on this week's calendar are the test of demand at that yield.
Employers added 29,000 jobs in September, and revisions took a combined 60,000 off July and August. The 10-year yield still rose 11 basis points, from 5.17%. The 30-year rose 14 basis points, to 5.63%. The two-year rose 2 basis points, to 4.83%, so the week's rise was in the long end.
The 10-year closed Friday at 5.28%
TLT, which holds US government bonds maturing in more than 20 years, fell 1.9% for the week, distribution included. SPY, the fund that holds the large US companies in the S&P 500, slipped 0.2%. QQQ, which holds the Nasdaq-100, rose 0.7%.
Futures still price a December hike
On September 16 the Fed, under Chair Kevin Warsh, raised its target range by a quarter point, to 3.75% to 4%. It was the first increase in three years, and the vote was unanimous. The next decision is Wednesday, October 28, at 2 p.m. Eastern, and that meeting brings no new rate projections.
After Friday's jobs report, fed-funds futures, the contracts that price the Fed's policy rate, put the chance of a quarter-point increase on October 28 at 17%. The chance of an increase in December was above 75%. The two-year yield prices the policy rate over the next two years, not one meeting, so it can sit at 4.83%, above the 4% top of today's range, when December is the meeting those futures treat as likely.
Our read: the jobs report cooled the October case, and it did not pull long-term yields down. Those are now separate questions.
What can move the long end this week
Monday, October 5, at 10 a.m. Eastern, the Institute for Supply Management publishes its September survey of service firms. A published forecast is 55.0, against 55.4 in August. Above 50 means more firms reported growth than reported a decline.
The number that matters for yields is the prices component, which tracks how many firms paid more for inputs. In August it stood at 72.6, the highest since August 2022. The next consumer-price report is Wednesday, October 14.
Treasury will sell $119 billion of notes and bonds through Thursday. Tuesday is a $58 billion three-year note, Wednesday a $39 billion 10-year note, and Thursday a $22 billion 30-year bond, each at 1 p.m. Eastern.
An hour after Wednesday's sale, the Fed publishes the minutes of the September 15-16 meeting. That meeting ended before Friday's jobs figures existed, so the minutes show how officials weighed inflation and hiring then.
Governor Christopher Waller speaks Thursday on the economic outlook. That is a chance to hear a policymaker after the jobs report.
New claims for unemployment benefits, out Thursday at 8:30 a.m. Eastern, have a published forecast of 205,000, against 197,000 the week before. That figure is the newest labor reading before October 28.
Friday at 10 a.m. Eastern, the University of Michigan publishes its first October survey of households. The inflation outlook inside it is the part that can move rate pricing.
Supply is still short of the quota
OPEC+ agreed on Sunday, October 4, to leave November oil production targets unchanged. Saudi Arabia and Russia led the group that made the call. Iran's parliament speaker, Mohammad Baqer Qalibaf, said the same day the Strait of Hormuz will not reopen until seven conditions in a June agreement with the United States are met.
"The OPEC+ group of seven kept their production ceilings unchanged, in line with market expectations. That said, despite rising flows through the Strait of Hormuz, their output levels remain well below quota," said Giovanni Staunovo, a UBS analyst.
OPEC data put August output from those seven at about 25 million barrels a day, roughly 5 million barrels a day below their February level, before the war began late that month.
November US crude settled Friday at $91.11 a barrel. December Brent, the global benchmark, settled at $102.25. USO, which holds near-term futures on US crude, slipped 0.6% last week, while XLE, the fund that holds the energy companies in the S&P 500, led by ExxonMobil and Chevron, rose 1.3%.
Wednesday's government report on US oil inventories, at 10:30 a.m. Eastern, is the oil release on the calendar. Energy is about 3.5% of SPY, so the oil price is a small slice of that fund.
PepsiCo reports Thursday before the open, a read on snack and drink demand for holders of XLP, the fund that holds the S&P 500's consumer-staples companies. Delta Air Lines reports Friday before the open. Delta is about 11% of JETS, the fund that holds airline operators, so the mix of fares and fuel in that report is a direct read for the fund.
For a holder of TLT, Thursday's $22 billion sale of 30-year bonds is the direct test. The 30-year yield is already at 5.63%. The auction shows whether buyers take that bond at that yield.
ETFs in this story
Frequently asked questions
How many jobs did employers add in September?
Employers added 29,000 jobs in September, and revisions took a combined 60,000 off July and August.
Did the jobs report pull long-term yields down?
The jobs report cooled the October case, and it did not pull long-term yields down.
What do fed-funds futures price after Friday's report?
Futures put the chance of a quarter-point increase on October 28 at 17% and the chance of an increase in December above 75%.
What auctions test demand this week?
Treasury sells a $58 billion three-year note Tuesday, a $39 billion 10-year note Wednesday, and a $22 billion 30-year bond Thursday.
