Treasury Market Pauses as Mixed Employment Data Complicate Fed Path

Treasury bulls and bears ended the week in a stalemate as mixed signals from private-sector data clouded the outlook for the U.S. labor market and with it, the odds of another Federal Reserve rate cut in December.

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Conflicting indicators left investors uncertain about the next policy move. Signs of labor market weakness the same factors that prompted the Fed to cut rates in September and October boosted demand for Treasuries earlier in the week. Yet, flashes of economic strength triggered selling, balancing out the gains.

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Meanwhile, the Labor Department’s official employment report was once again missing in action due to the prolonged government shutdown, which began October 1 and has now become the longest in U.S. history. The absence of reliable federal data has forced traders and analysts to rely on alternative indicators to gauge the economy’s direction.

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Adding to the market’s turbulence was renewed concern over the Trump administration’s tariffs, which have helped support federal revenues but are now facing a serious legal challenge that could undermine their future.

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After all the back-and-forth, Treasury yields ended the week nearly unchanged. On Friday, the 10-year yield slipped by just one basis point to 4.07%, leaving investors without a clear signal of where the market heads next.

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“Most of the alternative and private data we’re getting is consistent with what we saw before the shutdown began a clear cooling in the labor market,” said Jeff Rosenberg, portfolio manager of BlackRock’s systematic multistrategy fund, during an interview. “When you piece everything together, it suggests there’s roughly a 70% chance the Fed continues its easing cycle in December.”

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In the days leading up to last month’s Fed meeting, markets had fully priced in another rate cut for December 10. But Fed Chair Jerome Powell pushed back on those expectations, cautioning that it was “not a foregone conclusion.” His comments introduced an element of doubt that has since been echoed by several other Fed officials, all of whom remain wary as inflation continues to hover above the central bank’s 2% target.

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Investors are now bracing for another test of market appetite next week, when the Treasury Department will auction $125 billion worth of new securities—split across three-, 10-, and 30-year maturities starting Monday. These sales could offer a clearer read on investor sentiment and demand for longer-term government debt amid growing uncertainty over the Fed’s next move.

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“Yields on the 10-year below 4.10% seem reasonable in the grand scheme,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note on Friday. “Especially considering that next week’s major scheduled events are limited to the Treasury auctions of 3s, 10s, and 30s.”

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The broader takeaway from the week is that the bond market is caught in a delicate balance. Economic data outside official government reports continue to point to a labor market that’s losing momentum but not collapsing. That nuance has left investors split between those betting the Fed will resume its easing cycle in December and those expecting policymakers to hold steady until inflation shows more convincing signs of retreat.

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For now, traders seem content to wait for clarity. With the government shutdown delaying crucial reports and the Fed sending mixed signals, the Treasury market remains in a holding pattern steady, but far from settled.

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