Treasury yields retreat as traders rethink a Fed hike, but mortgage rate relief may prove fleeting
The September jobs report gave the Federal Reserve fresh grounds to stand pat this month, and bond traders moved quickly to price it in.
US employers added 29,000 nonfarm jobs in September, well short of the 84,000 forecast by economists surveyed by Dow Jones, the Bureau of Labor Statistics (BLS) reported Friday.
The unemployment rate rose to 4.2% from 4.1%. Revisions also removed a combined 60,000 jobs from July and August, turning July into a net loss of 10,000.
Traders treated the miss as a reprieve. Market-implied odds that the Fed will hold rates steady at its October 27-28 meeting jumped to 82.8%, according to CME Group's FedWatch tool.
The 10-year Treasury yield, the benchmark lenders use to price home loans, fell about 6 basis points to 5.176% in early trading. It had touched its highest level since 2002 earlier in the week.
Michael Brenning, chief operating officer at eLend, says rapid swings in Treasury yields are forcing lenders to reprice loans multiple times a day, adding complexity to rate locks, margins, and borrower affordability.https://t.co/rjfKz690Ga
— Mortgage Professional America Magazine (@MPAMagazineUS) October 1, 2026
Why the case for an October hike is fading
"For the Fed, this number should be the nail in the coffin for an October hike," Thomas Simons, chief US economist at Jefferies, said in a note.
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA), reached a similar conclusion.
"With inflation still too high, the Federal Reserve is unlikely to cut rates anytime soon. However, these data showing a softer job market may be enough to keep the Fed on hold at their October meeting. Wage growth continues to run below the pace of inflation, which will hamper consumer spending over time."
The Fed raised its benchmark rate by a quarter point in September, its first increase in three years. Markets now expect the next hike in December.
Not every policymaker has softened, however. Minneapolis Fed President Neel Kashkari held firm on his hawkish rate outlook even after a cooler August inflation reading.
The wage data gives the doves some cover. Average hourly earnings rose 0.1% in September, putting annual growth at 3%, the slowest pace since May 2021, according to the BLS.
The labor force grew by 485,000, which lifted the participation rate to 61.8% and helps explain the higher jobless rate.
What softer jobs data means for mortgage rates
Borrowers need the relief. Freddie Mac reported this week that the 30-year fixed-rate mortgage climbed to 7.28%, up from 7.03% a week earlier and its highest level in nearly three years.
Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR), said the report could ease some of that pressure.
"Mortgage rates could see slight relief after brutal rises over the past month. That's because the job market will not exert upward inflationary pressure and oil prices have retreated somewhat. The latest job report shows 29,000 net new jobs in September, indicating the economy is not nearing a recession but also not overheating."
Sam Williamson, senior economist at First American Financial Corporation, cautioned that cheaper borrowing alone won't revive home sales.
"September's softer hiring may offer home buyers some much-needed relief on mortgage rates, but that relief comes with a catch. Lower borrowing costs improve purchasing power, while slower hiring limits the confidence and life events that drive home sales. That combination can steady the housing market, though it's unlikely to spark a broad rebound for the time being."
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