Key facts
- US Treasury yields reached 24-year highs of 5.34% on October 1.
- The 10-year Treasury yield was at 5.2470% in Asia.
- Forecasts for US September payroll gains range from 35,000 to 180,000.
- The US unemployment rate is holding at 4.1%.
- The probability of a second Fed rate hike by year-end is 25% for October.
- The French-German yield spread widened past 140 basis points, the widest since 2012.
US Treasury yields were creeping higher in Asia on Friday, with the 10-year yield climbing 2 basis points to 5.2470%, as markets awaited the crucial September payrolls report. Yields had hit 24-year highs of 5.34% on October 1 after their steepest quarterly rise in 32 years, but the bond rout did attract some buyers back into the market, with yields between 5.25% and 5.35% seen as attractive for long-term value.
Forecasts point to a solid 90,000 payroll gain for September, though estimates range from 35,000 to 180,000, leaving room for surprise. The US unemployment rate is holding at 4.1%, with some analysts suggesting a risk of 4.0% due to slow workforce growth and soft participation rates. Average hourly earnings will also be a key indicator for labor market cost pressures, especially after the ISM factory survey showed a significant jump in its prices paid component.
These economic indicators are crucial as markets still anticipate a second rate hike from the Federal Reserve by the end of the year, despite the probability for an October hike dwindling to 25%. Two Fed officials this week indicated a need for more data before making a decision on the next move, emphasizing that the next move would be upward.
The overnight rally in Treasuries may have been partly supported by a rout in European markets, where France's budget announcement failed to ease investor concerns about its fiscal trajectory. This led to the French-German yield spread widening past 140 basis points, its widest level since 2012, prompting investors to sell off the euro. The single currency slid 1.3% against the Swiss franc, marking its worst day since April 2025 and reversing a portion of its 2.5% gain from the previous quarter.
Euro zone inflation data is also on the horizon and poses a challenge for bonds, with expectations that it could come in on the high side. The US dollar, meanwhile, was hovering near its highest level in 17 months, benefiting from the euro's weakness and setting itself up for a third consecutive weekly rise of 1.1%.
Asian shares were mostly lower, and European bourses were bracing for a weaker open, with pan-region stock futures down 0.1%. Nasdaq futures, however, showed strength, rallying 0.4%. In commodities, Brent crude oil was holding firm around $102 a barrel, as the US reportedly sent more troops and another carrier to the Middle East. China's suspension of oil product exports also fueled fears of worsening global shortages of diesel and jet fuel.