U.S. nonfarm payrolls increased by 150,000 in September, falling significantly short of the 200,000 consensus forecast. July payrolls were revised down 50,000 to 170,000, and August fell another 50,000 to 160,000. The cumulative miss triggered an immediate repricing: the two-year yield dropped 12 basis points to 4.95 percent within an hour of the release, while the ten-year fell 8 basis points to 4.72 percent.
The persistent downward revisions signal labor market deceleration has outpaced Fed expectations. Fed funds futures now price a November rate hike at just 10 percent, down from 45 percent before the data—effectively removing a hike from the near-term table.
The curve's inversion narrowed as short-end yields compressed harder than the long end, reflecting reduced terminal rate expectations. This steepening benefits existing bond portfolios by lowering duration risk. Credit spreads, which had widened on recession concerns, face potential compression as investors repriced tail risk downward.
Equity markets rallied on the shift toward monetary accommodation. The S&P 500 rose 0.7 percent to 7,722, and the Nasdaq climbed 1.2 percent to 27,182. Bitcoin traded at 84,145, down 0.7 percent over 24 hours.
The October Consumer Price Index, due Nov. 14, becomes the next critical inflection point for Fed expectations.
