(Bloomberg) -- Treasuries rallied after a weaker-than-expected jobs report prompted traders to scale back expectations that the Federal Reserve will raise interest rates in the coming months.
The yield on two-year Treasuries, which is the most sensitive to changes in monetary policy, fell 6 basis points to 4.11%, while the 10-year yield declined 2 basis points to 4.46%.
"It's a great report for Kevin Warsh and it's a good report for the bond market," Jeffrey Rosenberg, senior portfolio manager at BlackRock told Bloomberg Television. It will help "Warsh to be patient."
Interest-rate swaps showed traders pricing in about a 20% chance of a rate increase at the July meeting, down from 33% before the data was released.
A total of 29 basis points of Federal Reserve rate increases were priced in by December, the fewest since Warsh, the Fed chairman, held his first policy meeting, when officials surprised investors with a hawkish message.
Following the jobs data, the dollar slumped the most in two months, with the Bloomberg Dollar Spot Index falling as much as 0.7%.
Nonfarm payrolls increased 57,000 last month after downward revisions to the prior two months, compared with the estimate of 113,000 among economists surveyed by Bloomberg. The unemployment rate fell to 4.2% as labor force participation plunged.
"There's nothing here that signals the Fed should be hiking," said Dan Carter, senior portfolio manager at Fort Washington Investment Advisors. "The overall conclusion is that the labor market continues to move along at a slow, steady pace."
Prior to the Thursday's job report, traders in the fed funds market ramped up bets that the Fed will start raising interest rates as soon as late this month July.
"Today's numbers are consistent with our view that while the Fed is unlikely to be cutting anytime soon, rate hikes are also likely inappropriate in the near-term, perhaps even through the next 12 months," said Zach Griffiths, head of investment grade and macro strategy at CreditSights.
--With assistance from Kristine Aquino, Carter Johnson and Cameron Fozi.
(Recasts with additional context and updates market prices.)
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