U.S. Treasury yields dropped significantly on Friday amid expectations of a deeper interest rate cut by the Federal Reserve to bolster a weakening job market. The latest jobs report showed a four-month stall, with June data revisions revealing job losses. This prompted a 11.5 basis point drop in 2-year yields and a 14.2 basis point decrease in 10-year yields.

The labor market’s stagnation has led to predictions of 75 basis points in rate cuts by year-end. While the odds of a 50 basis point cut in September are around 10.2%, a 25 basis point cut remains more likely at 89.7%. Analysts argue that markets and policymakers have been misinterpreting labor data, with inflation data next week potentially shifting the narrative.

Concerns about a potential recession due to a flatlining labor market have caused investors to turn to U.S. Treasurys for safety. Gold and other traditional safe assets are also favored, while U.S. assets have faced selling pressure. With global government bond yields rising, U.S. Treasurys are seen as a relatively attractive option.

The appeal of U.S. Treasurys has pushed yields to new lows, with investors seeking to lock in rates amid expectations of further rate cuts. A $7.3 trillion investment in U.S. money-market funds could face reinvestment risks if yields decline rapidly. Despite a recent increase in bond yields, stocks closed lower on Friday.

Analysts see the stock market dip as a temporary setback, believing there is potential for growth in 2026 with stimulus measures, rate cuts, and tariff clarity. The Fed’s perception of a strong job market may have been an illusion, prompting the need for rate cuts. The U.S. unemployment rate has hit a nearly 4-year high, setting the stage for Fed intervention.

Read more at Yahoo Finance: 10-year Treasury tumbles to early April low as weak jobs report raises chances of a half-point Fed rate cut