A weak U.S. jobs report did what bad news hadn’t done in a while: It made U.S. debt look like a safe haven again — albeit briefly.
The yield on the 10-year Treasury note TMUBND10Y fell 13.4 basis points to 4.124% on Friday, according to Dow Jones Market Data, after the Labor Department reported that the U.S. economy added 126,000 jobs in August, a smaller increase than the 130,000 expected by economists surveyed by The Wall Street Journal.
The unemployment rate rose to 3.8% from 3.5% in July.
Bond investors initially reacted as if a slowing economy would mean the Federal Reserve would be less likely to raise interest rates, which would be good for bond prices. However, that enthusiasm quickly faded as investors realized that a weaker economy could also mean lower corporate earnings.
“The market is starting to price in the possibility of a recession,” said Jim Vogel, executive portfolio manager at Rialto Market Associates.
“If the economy is slowing down, that’s not good for corporate profits, and that’s not good for stocks,” Vogel said.
The yield on the 2-year Treasury note TMUBND2Y fell 8.1 basis points to 4.874% on Friday.
The yield curve, which is the difference between the yields on long-term and short-term Treasury notes, flattened on Friday, which is often seen as a sign of economic uncertainty.
“The flattening yield curve is a sign that investors are worried about the economy,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
“They’re worried that the Fed is going to have to raise interest rates to fight inflation, which will slow down the economy,” Boockvar said.
The stock market also reacted negatively to the jobs report. The S&P 500 SPX fell 0.4% on Friday.
“The jobs report was a reminder that the economy is still slowing down,” said John Lynch, chief investment strategist at Comerica Wealth Management.
“We’re still in a period of economic uncertainty, and investors are going to be cautious,” Lynch said.