10-year Treasury yield ticks higher despite weaker-than-expected jobs report

Treasury yields rose on Friday, after initially falling following an unexpectedly weak September jobs report likely put the brakes on a Federal Reserve rate hike in October.

The benchmark 10-year Treasury yield rose almost 5 basis points to 5.281%. Earlier this week, the yield reached its highest levels since 2002. The 30-year Treasury yield added 2 basis points at 5.629%. The 2-year Treasury yield, which is the most sensitive to Fed moves, was higher by 5 basis points at 4.839%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Nonfarm payrolls increased by just 29,000 for the month while the unemployment rate increased to 4.2% from 4.1%, the Bureau of Labor Statistics reported Friday. Economists surveyed by Dow Jones had been predicting an 84,000 increase and unemployment to remain steady. The August jobs count was revised lower to a gain of 133,000.

Yields initially fell in reaction to the report, but throughout the trading session they moved back into positive territory.

"I think that's the right move because I don't think this report necessarily changes the story for the Fed," said Timothy Chubb, chief investment officer at Girard Advisory Services. "I still think the trajectory from here is higher for longer."

Traders now see a 77% chance that the Federal Reserve will hold rates steady at its October meeting, according to the CME Group's FedWatch tool, though traders still see a high likelihood for a hike at its meeting in December.

Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, agrees that a rate increase is unlikely this month, but that it's likely the Fed's hiking cycle isn't over.

"Today's soft print argues against the idea that the labor market is retightening," she said. "One follow-up hike in December remains our base case; however, continued pressure by markets and moves higher in energy prices could force the Fed's hand this month as well."

Pressure on global government bonds eased elsewhere after a sharp sell-off this week, with 10-year yields down by around 3 basis points across major European economies. The recent rise in yields reflects concerns about stubborn inflation and hawkish central bank commentary, fueling expectations that interest rates could remain elevated for longer.