Surprise Drop in Private Payrolls and Government Shutdown Lead to 10-Year Treasury Yield Decline

Treasury Yields Decline Amid Surprising Drop in Private Payrolls and Government Shutdown Concerns

Private Payrolls Show Unexpected Decline

On Wednesday, U.S. Treasury yields fell after the latest data revealed an unexpected decrease in private payrolls for September. The 10-year Treasury yield dropped over 4 basis points, settling at 4.106%, while the 30-year bond yield slipped more than 2 basis points to 4.706%. A basis point is equivalent to 0.01%, highlighting the inverse relationship between yields and prices.

Implications of the U.S. Government Shutdown

The release of this data coincided with a U.S. government shutdown, which has delayed the publication of the official September U.S. jobs report. The shutdown commenced after the Republican-led Senate failed to secure an agreement on the federal funding bill. Contentious discussions revolved around the inclusion of extended healthcare tax credits, a point of contention between Democrats and Republicans.

Impact on the Economy

The shutdown carries significant economic ramifications, with President Donald Trump criticizing the Democrats for their stance in negotiations. Trump warned of potential permanent layoffs during this period, adding to the instability.

Economist William Lee from the Milken Institute, during an interview on “Worldwide Exchange,” noted the historical resilience of the economy during shutdowns. However, he emphasized the strategic maneuvering by both parties this time, referencing changes similar to those implemented by Elon Musk with DOGE—a point some Republicans are seizing. Conversely, Democrats view this as an opportunity to push forward their legislative agenda.

Potential Risks to U.S. Credit Quality

Prolonged shutdowns could impact the perceived credit quality of U.S. debt, potentially affecting Treasury prices and yields. In May, Moody’s downgraded the U.S. credit rating and cautioned about further downgrades if policy effectiveness or institutional strength deteriorates significantly. JPMorgan traders highlighted this scenario to clients as a possible “tail risk” associated with the ongoing shutdown.