Weak Jobs Data Keeps Yields Elevated, Nasdaq Futures Dip

U.S. Treasury yields remained pinned near their highest levels in years on Monday as investors digested a string of weak economic signals and prepared for fresh clues from the Federal Reserve. The benchmark 10-year note sat at 5.273 percent after sliding less than one basis point, while the 30-year bond edged down to 5.626 percent. Those figures follow a sharp selloff in recent weeks that has pushed borrowing costs higher across the economy.

Traders appear to be dialing back expectations for near-term rate cuts. The latest jobs report came in softer than anticipated, which eased some fears of another aggressive Fed move, yet the market still prices an 82 percent chance that policymakers will leave rates unchanged at their next meeting. Attention now turns to the Institute for Supply Management services survey due later today and the release of September Fed minutes on Wednesday. Analysts at Deutsche Bank noted that the unsettled bond market makes every incoming data point and official comment especially important, particularly any discussion of where officials see the neutral rate settling.

Higher yields translate directly into costlier mortgages, auto loans and business credit for ordinary Americans. The pattern reflects years of heavy federal spending that has left the Treasury issuing record volumes of debt at a time when inflation has proven stickier than officials once claimed. Markets are essentially demanding compensation for the risk that deficits will remain large and the dollar's value will keep eroding.

Across the Atlantic the euro fell to a 17-month low against the dollar, dropping 0.6 percent as political uncertainty in Spain and France weighed on investor confidence. France in particular has become a focal point for sovereign-debt concerns, with its public deficit still running above 5 percent of GDP despite promises of modest restraint. Economists at Barclays warned that even the government's latest budget outline is unlikely to deliver the promised improvement. Spain, once viewed as a relative bright spot, has also seen its political situation grow more complicated, adding to the sense that fiscal discipline is slipping across the eurozone.

The stronger dollar that results from these crosscurrents puts pressure on U.S. exporters and raises the price of imported goods, feeding back into the same inflation pressures the Fed has struggled to tame. European leaders continue to face the consequences of high spending, energy costs and demographic strains that their policies have done little to address. For American households the combination of elevated domestic borrowing rates and a volatile global currency picture points to continued strain on living standards.

Investors will watch Wednesday's Fed minutes closely for any hint that officials are rethinking how high rates need to stay to bring inflation under control. So far the message from the bond market is clear: years of loose fiscal policy at home and political drift abroad have left yields elevated and the outlook uncertain.