30-year Treasury yield ends at almost nine-month high amid signs of tight U.S. labor market

What happened

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.878%
  rose 3.8 basis points to 4.912% from 4.874% on Monday.

• The yield on the 10-year Treasury
  TMUBMUSD10Y,
  4.020%
  jumped 9.2 basis points to 4.048% from 3.956% Monday afternoon. Tuesday’s level is the highest since March 2, based on 3 p.m. figures from Dow Jones Market Data.

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  4.091%
  advanced 8.8 basis points to 4.104% from 4.016% late Monday. Tuesday’s level is the highest since Nov. 9.

What drove markets

Data released on Tuesday showed that U.S. job openings dipped to 9.6 million in June — signaling that the labor market still remains quite tight — and that the number of workers who quit in June decreased to 3.8 million from 4 million in May.

A strong jobs market is seen as likely to contribute to inflationary pressures and put pressure on the policy-setting Federal Reserve to keep interest rates elevated. More U.S. labor-related data is expected to arrive over the next few days, including Wednesday’s ADP private-sector jobs report for July, weekly initial unemployment claims on Thursday, and July’s nonfarm payrolls report on Friday.

In other data released on Tuesday, the ISM manufacturing index rose slightly to 46.4% in July from 46% previously, yet manufacturers remain mired in a slump. And construction spending was up 0.5% in June after a revised 1.1% gain in the prior month.

Markets are pricing in a 82.5% probability that the policy-setting Federal Open Market Committee will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 30.5%.

The central bank is mostly expected to take its fed funds rate target back down to around 5% or even lower by next May.

Meanwhile, the Treasury Department’s $1 trillion borrowing estimate for the third quarter is raising questions about the extent to which foreign and domestic buyers can continue to keep up their demand for U.S. government debt.

What analysts are saying

“The labor market is key for the Fed and the current economic outlook. It appears some cooling conditions are at hand, but wages are still not sufficiently cool,” said George Mateyo, chief investment officer of Key Private Bank, which manages $50.2 billion in assets.

“The impact of recent economic data and central bank decisions on the U.S. fixed-income markets has been fairly muted on the front end of the yield curve,” Mateyo wrote in an email.