Weak Jobs Report Cools Fed Hike Odds as Yields Peak

Week of September 28 to October 2, 2026

This was the week the bond market finally blinked. Long-term yields pushed to levels not seen in more than two decades, and then a surprisingly weak jobs report pulled the Fed's October rate hike almost completely off the table. Below is how that tug of war played out across seven markets, and what each one is telling us about where conviction really sits.

The global bond selloff reached a new extreme midweek. The US 10-year Treasury yield touched roughly 5.34% on Thursday, its highest level since 2002, while the 30-year moved above 5.6%. The pressure was not only American: the UK 30-year gilt yield rose above 6% for the first time since 1998, and French government debt stayed under strain. The reasons are the same ones we have been tracking for weeks. Energy prices tied to the US-Iran war and the disruption around the Strait of Hormuz keep inflation sticky, heavy government and corporate borrowing keeps bond supply high, and investors are demanding more compensation to lock their money up for ten or thirty years. The Fed's mid-September hike, its first in three years, has not calmed the long end of the curve so far.

Then the data turned. Job openings fell more than expected, Conference Board consumer confidence slipped to 81.9, the August PCE inflation report came in cooler than forecast, and New York Fed President John Williams said there was no rush to hike again. Friday's payrolls report sealed it: the US added just 29,000 jobs in September against expectations of 84,000, the prior two months were revised down by a combined 60,000, and unemployment rose to 4.2%. The market's odds of an October hike collapsed, and the 10-year yield closed the week near 5.18%. The important nuance is that short-term yields fell faster than long-term ones. In plain terms, the market now believes the Fed may pause in October, but it still does not trust that inflation and government debt are under control. That is the regime right now: a Fed that might wait, inside a bond market that has not relaxed.

Outside the US, the picture is a lesson in how energy shocks work. Eurozone inflation jumped to 3.8% in September, yet the euro fell. The Bank of England's Catherine Mann said UK financial conditions are not tight enough, yet the pound fell. When inflation comes from an energy shock, it squeezes growth at the same time it pushes prices up, so markets often treat it as a negative for the currency rather than a reason to expect higher rates. That one idea explains a lot of this week's FX behavior.

So what is the market waiting for now? Mostly clarity on how committed the Fed is to tightening further. Chair Kevin Warsh has dropped the habit of signaling the next move in advance, which puts more weight on incoming data and on documents like Wednesday's meeting minutes. The September dot plot showed a median expectation of one more quarter-point hike this year, and Warsh described the September move as removing a dose of accommodation, which implies policymakers still see rates as below neutral. If the minutes show broad support for another hike, December hike pricing has room to stay firm. If they reveal more hesitation, the pause story gains ground, and that shift would ripple through every market in this letter.

The Dow spent most of the week under pressure from rising long-term yields, posting its weakest close on Wednesday near 50,906 as the 10-year pushed toward 5.3%. Higher yields hit the Dow in two ways: they raise borrowing costs for the industrial and cyclical companies that dominate the index, and they make a risk-free 5% bond a more serious competitor for investors' money. When yields eased on Thursday and Friday, the index recovered part of the loss, but it still finished the week about 1.3% lower. Meanwhile, the Nasdaq closed at a record high on Friday. That split is worth noticing: the relief rally favored large tech and AI-linked growth names rather than the broad, rate-sensitive companies that make up the Dow.

Gold had its roughest week in some time, falling about 3.7% and hitting a seven-week low near $4,147 on Monday, its lowest level since early August. The driver was the classic headwind combination: higher Treasury yields, a firmer dollar and rising expectations for more Fed hikes, all of which increase the cost of holding a metal that pays no interest. What stands out is what happened after the jobs report. On Friday, yields and the dollar both fell, which normally helps gold, yet gold still slipped about 1% to close at $4,162. When gold fails to benefit from conditions that usually support it, it often points to investors trimming positions after a very large run, since gold is still up roughly 13% over the past year.

Oil had a whipsaw week. On Thursday, WTI jumped $2.45 to $92.87 after Chinese refiners suspended fuel exports for October and reports emerged of additional US military deployments to the Middle East. On Friday, it gave back $1.76 after the G7 agreed to release 100 million barrels of diesel and other emergency stocks through the International Energy Agency. The deeper story is a shift in where the shortage sits: crude flows from the Persian Gulf are slowly recovering, but refinery disruptions in the Middle East and Russia have made diesel and other fuels the real pressure point. Brent finished near $102.25, roughly $11 above WTI, a gap that shows international barrels remain much tighter than US supply. Over the weekend, OPEC+ kept its November output targets unchanged, while Iran said the Strait of Hormuz will not reopen until its conditions are met.

The euro posted its fourth straight weekly decline and touched 1.1210 on Thursday, its lowest level since May 2025. Hotter inflation did not help: eurozone prices rose 3.8% in September, but much of that came from fuel and food, which hurts household spending and growth. Markets also doubt the ECB will tighten as quickly as the Fed, especially after President Christine Lagarde stressed a cautious and gradual approach despite the ECB's September hike. Add rising concern over France's public finances, and the euro is facing pressure from growth, policy and fiscal risk at the same time. Friday's weak US jobs data produced only a modest bounce.

Sterling finished flat, but the week underneath was stressful. The pair dipped below 1.32 on Thursday to its lowest level since late June as the 30-year gilt yield topped 6%. Higher UK yields did not support the pound, because investors were selling gilts and sterling together. That is a sign of worry about inflation and the UK's fiscal position, not a vote of confidence in higher returns. The Bank of England has held rates at every meeting since March, and Mann's comment that conditions are not tight enough added to the sense that the Bank is behind the curve. Chancellor John Healey's first Budget, due later this month, is now a major event for gilts and the pound. Friday's weak US payrolls pulled the pair back to unchanged.

The yen stayed boxed in. Japan's quarterly Tankan survey on Thursday showed business conditions improving across company sizes, but the Bank of Japan's Summary of Opinions offered little clarity on the timing of the next hike, and the pair briefly pushed above 158.40. The BoJ's policy rate sits at 1.25%, its highest since 1995, after a 7 to 2 vote to hike in September. At the same time, Japanese officials toughened their tone, saying Japan and the US stand ready to act against excessive currency moves. So the pair is caught between two forces: the wide US-Japan interest rate gap, which supports it, and the threat of intervention, which caps it.

The Canadian dollar weakened even with WTI above $90, which is a notable divergence. Normally, higher oil prices support the loonie because Canada is a major crude exporter, but this week dollar strength and Canada's soft growth picture mattered more. The flash estimate showed GDP rising only 0.2% in August after a flat July, and markets see roughly even odds of a Bank of Canada hike on October 28. Canada also lost 41,700 jobs in August, which puts this Friday's employment report firmly in focus.

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Weeks like this are a reminder that the headline and the market's reaction are two different things. Inflation went up in Europe and the euro fell. Yields fell in the US and gold fell anyway. When markets behave in ways that seem backwards, it is usually a sign that something deeper is in charge, and the best response is patience rather than prediction. Keep position sizes honest while ranges are this wide, and let price show you which story it is choosing before you commit to one.

Fed'n Markets

Sources: Federal Reserve, US Bureau of Labor Statistics, CME FedWatch, Reuters, CNBC, Bloomberg, Yahoo Finance, FXStreet, Eurostat, Bank of Japan, Bank of Canada, EnergyNow, Financial Modeling Prep (closing price data).

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