Short-dated Treasurys rallied on the weak payroll count while the long end sold off, leaving a steeper curve ahead of next week's three-, 10- and 30-year auctions.
Macro · FinancialMarkets.com · October 2, 2026 · Tickers: TLT, IEF, SHY, TBT
A payroll report that missed forecasts by more than half would normally hand bond investors a good day. Friday's did so for about an hour.
The 10-year Treasury yield fell as low as about 5.16% after the 8:30 a.m. release, down from about 5.24% at Thursday's close. By about 2 p.m. Eastern it had climbed to 5.28%, up about 4 basis points on the day and near its session high of 5.298%. The five-year yield rose about 6 basis points to 5.06%, and the 30-year about 3 basis points to 5.63%.
The two-year note, which tracks expectations for Fed policy most closely, went the other way. It traded between about 4.72% and 4.76% in the morning, below the 4.78% on Thursday's official curve.
A curve pulling apart
On Thursday's official Treasury curve, the two-year stood at 4.78% and the 10-year at 5.24%, a gap of 46 basis points. With the 10-year near 5.28% by early afternoon and the two-year below Thursday's level in the morning, the gap had widened to roughly 50 basis points or more. The steepening came from the long end rising while the short end fell, which is a different shape from Thursday, when both ends rallied and the two-year simply fell further.
The divergence tracks what the jobs report did and did not change. Odds of an October rate increase fell to about one in five, which pulls down yields tied to the next few Fed meetings. Nothing in the report addressed the forces that have lifted long-term yields to their highest levels since 2002.
What else was moving
The long end had company. Brent crude recovered from an early drop below $99 to about $102.80 by early afternoon, up on the day. France's 10-year borrowing cost briefly topped 5%, its highest since July 2002. Britain's 10-year gilt eased to about 5.33%.
Equities rallied, with the Nasdaq Composite reaching a record. Higher stock prices and a higher 10-year yield on the same afternoon suggest a market that read the report as good news for near-term Fed policy without changing its view of longer-run inflation and deficits.
Supply ahead
Next week brings fresh duration to absorb. The Treasury sells three-year notes on Tuesday, reopens the 10-year on Wednesday and the 30-year on Thursday, according to its tentative schedule. Weekly bill auctions come Monday. The department has also scheduled a buyback of 20- to 30-year debt for Thursday.
The auctions
Demand at Wednesday's 10-year reopening and Thursday's 30-year sale will offer the cleanest read on whether buyers want long bonds at these yields. Strong bidding with the two-year holding near 4.7% would point to a curve steepening on Fed expectations. Weak bidding would point to supply and term premium.