The yield on U.S. Treasury bonds fell sharply, weak employment data prompted speculation in the market that the Federal Reserve will accelerate rate cuts.

On Friday, the yield on U.S. Treasury bonds fell sharply, as investors widely expected the Federal Reserve to be forced to cut interest rates more aggressively to support the clearly slowing job market. The latest August non-farm employment report showed that the U.S. labor market has been stagnant for four consecutive months, with a rare downward revision to June data, unexpectedly showing a net decrease in job positions for that month. George Catrambone, Head of Fixed Income for the Americas at DWS, said, "The market had not priced in this negative outcome, especially with the latest revised data showing negative growth in many job categories in the first half of this year, catching the market off guard." Impacted by the employment report, both short-term and long-term U.S. bond yields fell significantly, with the 2-year Treasury bond yield dropping by 11.5 basis points to 3.506%, hitting a one-year low, and the 10-year Treasury bond yield declining by 14.2 basis points to 4.085%, the lowest level since April 4. Kathy Bostjancic, Chief Economist at Nationwide, said, "With the continuous weakness in the job market, we maintain our forecast of a cumulative 75 basis points rate cut by the end of this year." She pointed out that the key issue now is the number of rate cuts and their magnitude in the future. According to the CME FedWatch tool, the market currently expects a 10.2% probability of a 50 basis point rate cut (a significant cut) at the September meeting, compared to 0% just a day ago; the probability of a conventional 25 basis point rate cut is 89.7%. This reflects the market rapidly repricing. Steve Englander, Head of Global Foreign Exchange Strategy at Standard Chartered, suggested earlier this week that the Fed should consider implementing a significant rate cut this month, as markets and policymakers may underestimate the seriousness of the weakness in the labor market. Jeffrey Schulze, Head of Economic and Market Strategy at ClearBridge Investments, pointed out that the "stall" in the job market has brought potential recession risk back into focus. He said that investor sentiment was relatively optimistic in early trading on Friday, but as the data was digested, the market gradually began to price in weakened earnings expectations for companies. Schulze believes, "From a long-term perspective, this looks more like a brief correction in the stock market, a 'buy on dip' opportunity." He expects that by 2026, with the implementation of President Trump's signature tax cuts and fiscal stimulus policies, as well as clarity on Fed rate cuts and tariff policies, the stock market will return to an upward trajectory. Earlier in the week, the volatility in bond yields had put pressure on the stock market. In midday trading on Friday, the S&P 500 and Nasdaq indices reached new highs, but they fell back at the end of the day, with the Dow Jones Industrial Average falling by 0.48%, the S&P 500 by 0.32%, and the Nasdaq by a slight 0.03%. Market participants said that as weak employment data and expectations of rate cuts increase, investors are reassessing corporate earnings and economic growth prospects. Short-term volatility has intensified, but rate cuts and fiscal policy support could provide momentum for a stock market rise by 2026.