US Treasury yields plunge as Fed holds rates, Powell hints focus on jobs market

• US Treasury yields drop following Fed’s decision to keep rates unchanged; 10-year note falls to 4.04%.
• Powell emphasizes job market importance, with July Nonfarm Payrolls report pivotal for future rate decisions.
• Market participants price in three rate cuts by year-end, as indicated by CME FedWatch Tool.

US Treasury yields along the short and long end of the curve plummeted late on Wednesday following the Federal Reserve’s decision to hold rates unchanged, as expected. The US 10-year benchmark note coupon sank nine and a half basis points to 4.04% following Fed Chair Jerome Powell’s remarks.

US 10-year benchmark note falls 9.5 basis points to 4.04% as market anticipates potential rate cuts

Yields advanced on the release of the monetary policy statement, which was widely perceived as slightly “hawkish.” Nevertheless, all changed once Powell hit the stands.

Powell said that the disinflation process “broadened” and acknowledged that the jobs market would be a crucial piece of the puzzle to reduce borrowing costs, not just inflation.

Following these remarks, Friday’s July Nonfarm Payrolls report will be a crucial piece of the puzzle as the Fed pivots towards becoming more concerned about employment.

When asked about discussions of lowering rates in the July meeting, Powell commented that officials discussed a July rate cut, but the majority opted to keep the federal fund's rates (FFR) unchanged at current rates.

Data-wise, US private hiring decelerated in July, according to the Automatic Data Processing (ADP) Employment Change report. Additionally, Building Permits improved following May’s plunge. Meanwhile, the Employment Cost Index (ECI), monitored by the Fed as a measure of inflationary pressures in wages, dipped in the second quarter of 2024.

Following the Fed’s decision, market participants had priced in three rate cuts toward the end of the year, according to the CME FedWatch Tool.