Treasury yields fell on Friday as a slower-than-expected pace of job creation in the U.S. helped ease fears of inflation and imminent interest-rate increases.
The Labor Department said a net 29,000 jobs were created in September, well below the 84,000 expected in a Wall Street Journal consensus. Past figures were revised downward by a total of 60,000 over August and July. The unemployment rate ticked higher to 4.2% from 4.1%.
Treasury yields were already receding from recent highs, amid a 4% decline in WTI oil prices, but the payrolls data accelerated the fall. The 10-year yield slipped to 5.178% from 5.239% and the two-year to 4.718% from 4.773%. They recovered some ground.
Yields hit multidecade highs earlier this week as investors worried about long-term inflation and government debt. While Friday's labor numbers didn't quelch all fears, they alleviate pressure on the Federal Reserve to raise rates for the second consecutive time this month.
"The labor market tells us that the economy is not overheating," Eric Winograd, chief economist at AllianceBernstein said in a note. "That argues for gradual and limited tightening from the Fed."
A combination of mild inflation data and soft payrolls increased the odds of a Fed hold this month to 82% from 36% a week ago, according to the CME.
In Europe, the 10-year French benchmark reached a 24-year high while the comparable German government-bond yields dropped sharply, LSEG data showed.
The spread between French and German 10-year sovereign bond yields jumped to its highest since November 2011 as a result, reaching 158.67 basis points. This came as Thursday's French government 2027 budget, containing 43 billion euros ($48.34 billion) in cuts and cost savings, failed to restore investor confidence.
The leap in the French bond spread, which has risen from levels around 84 basis points in early September, is "a clear indication that the budget details announced in parliament did not go down well with investors," MUFG's head of research for global markets EMEA Derek Halpenny said in a note.
The cost of insuring French government bonds against default also jumped. Five-year French credit default swaps climbed to 81 basis points, the highest in a number of years, S&P Global Market Intelligence data showed. This is sharply higher compared with a level of around 33 basis points at the start of September.
The question of whether the French government will be able to implement the planned cuts is keeping markets on edge due to disagreements between political parties. Over the past two years, the negotiations have blown past the end-of-year deadline with lawmakers voting to oust prime ministers who pushed for cuts.
A global risk-off sentiment caused investors to rush into safe-haven assets, Deutsche Bank Research strategists said in a note.
The move particularly benefited German Bunds. Ten-year German Bund yields dropped 12.4 basis points to 3.409%.
"Bunds may have finally moved back into 'safe haven' mode, both within the eurozone and relative to U.S. Treasurys," LBBW analysts said in a note.