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Weak payrolls report impacts Treasury yields

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Upcoming Treasury auctions to increase supply

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Factory orders data matches expectations

By Chuck Mikolajczak

NEW YORK, Aug 4 (Reuters) - U.S. Treasury yields were

choppy to start the trading week, alternating between modest

gains and declines, after a sharp drop in Friday in the wake of

a weak payrolls report that pushed the 10-year yield to a

one-month low.

Friday's government payrolls report for July fell short of

expectations and there were sharp downward revisions to the data

for May and June.

Markets had already been cautious before the soft report as U.S.

President Donald Trump announced a fresh wave of tariffs on

dozens of trading partners.

Trump later fired the commissioner of the U.S. Bureau of Labor

Statistics, Erika L. McEntarfer, and the Federal Reserve said

Governor Adriana Kugler was resigning early, giving the

President the opportunity to appoint a replacement who could be

more receptive to cutting interest rates.

"There was a big move in the bond market and yields have been

kind of going back and forth today," said Jim Barnes, director

of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"You would think that you'd probably have some type of give

back today just based on Friday's movements, but there's a lot

for investors to digest and it's just not one month data, it's

three months of data that basically paints a completely

different picture of what the labor market looked like from a

week ago."

The yield on the benchmark U.S. 10-year Treasury note

rose 0.6 basis points to 4.226% after dipping to

4.198%, its lowest since July 1. The yield tumbled 14 basis

points on Friday, its biggest drop since April 3.

Expectations for a rate cut of at least 25 basis points by

the Federal Reserve at its September meeting stand at 83.8%,

according to CME's FedWatch Tool, up from 63.1% a week ago.

The yield on the 30-year bond rose 0.8 basis

points to 4.815%.

More supply will hit the market this week as Treasury is

scheduled to auction $58 billion in 3-year notes on

Tuesday, $42 billion in 10-year notes on Wednesday and $25

billion in 30-year bonds on Thursday.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 51.2 basis points after climbing

to 54.9, its highest since July 18.

Economic data from the Commerce Department on Monday showed

factory orders tumbled 4.8%, in-line with expectations of

economists polled by Reuters, after an upwardly revised 8.3%

increase in May as commercial aircraft orders plunged.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations, rose

0.8 basis points to 3.712% after falling to 3.659%, its lowest

since May 1. The yield plummeted 24.7 basis points on Friday,

its biggest daily drop since August 2, 2024.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.427% after closing at 2.409% on Friday, its lowest since July

10.

The 10-year TIPS break-even rate was last at

1.876%, indicating the market sees inflation averaging about

1.9% a year for the next decade.