The yield on the 10-year US Treasury note fell below 4% on Thursday as political gridlock over government spending deepened concerns about the economy and a weakening labor market.
Treasury yields slipped across maturities as investors weighed the potential fallout of the federal shutdown, with fears mounting that the disruption could trigger economic shocks within days.
The uncertainty comes ahead of Friday’s monthly jobs report, which itself faces delay due to the government closure. The shutdown followed the failure of the Republican-controlled Senate to pass a temporary funding bill on Tuesday, blocking a Democratic-led attempt to extend healthcare tax credits.
Adding to market jitters, President Donald Trump warned this week of potential permanent layoffs if the impasse drags on. Analysts cautioned that prolonged congressional deadlock could disrupt economic activity and put federal workers at risk of job cuts.
Recent labor market signals have already reinforced the slowdown narrative. Payrolls tracked by ADP fell for two consecutive months, marking the first back-to-back drop since the 2020 pandemic shock. Meanwhile, JOLTS data showed a decline in voluntary quits, and the Challenger report highlighted softer hiring trends.
This series of weak indicators pushed the Federal Reserve’s Open Market Committee (FOMC) to resume its rate-cutting cycle last month. Futures markets are now pricing in at least two additional rate cuts this year despite lingering inflationary pressures.
The combination of political paralysis, labor market weakness, and monetary easing is seen by analysts as a recipe for continued volatility in US bond markets.
