The U.S. 10-year Treasury yield soared to 4.19% on Thursday, peaking for the first time since November 2022, but retreated significantly on Friday, ending at 4.04% (+8 basis points over the week) in response to July's jobs report. The new jobs added to the U.S. economy in July totaled 187,000, undershooting projections of 200,000, marking the lowest acceleration since 2020.
Long-term Treasury yields had initially surged in response to the threat of an upsurge in Treasury supply. For the first time in two and a half years, the U.S. Treasury elevated its quarterly bond sales to accommodate the steep rise in budget deficits - a matter so alarming that it prompted Fitch Ratings to slash the government's AAA credit rating.
By contrast with the U.S. 10-year Treasury yield, the 2-year yield dropped from 4.89% to 4.77%. As a result, the yield curve has continued to steepen from -93 bps to -73 bps, signaling that investors are alleviating their worries related to possible recession threats.
In Europe, the yield on the German 10-year Bund rose by 7 basis points from 2.49% to 2.56% while the yield on the French 10-year OAT jumped to 3.10% from 3.025%.
Against the backdrop of rising Treasury yields, investment grade corporate bonds took a hit. In Europe, the IBOXX € Liquid Corporates index edged down 0.20%. In the U.S., the IBOXX $ Domestic Corporates index lost 1.41%, its worst week since mid-February.
High yield bonds held firm in Europe (IBOXX € Liquid High Yield Index down 0.01%) but slid 0.41% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index).
Lastly, emerging debt denominated in local currencies plummeted 2.68%, marking its worst week since mid-August 2022.