The weakness in the U.S. labor market and the rise in global bond yields

In early September 2025, U.S. economic data once again sparked market attention. Over the past week, U.S. labor market data has shown signs of continued slowdown, with the Non-Farm Payroll report (NFP) becoming the focal point. Although the S&P 500 index briefly reached an all-time high, it subsequently experienced a noticeable pullback, reflecting investors' concerns about the economic outlook. At the same time, gold prices continued to rise, breaking through the $3600 per ounce mark, while global long-term bond yields showed an upward trend, particularly for 30-year bonds. These two major themes—the weakness of the labor market and the selling off in the bond market—are interwoven, highlighting the uncertainty in the macro economy. This article provides an objective analysis of these phenomena based on the latest data and explores their potential impacts. The analysis primarily references sources such as the U.S. Bureau of Labor Statistics (BLS), the ADP report, and dynamics in the global bond market.

###US Labor Market: Slowdown Trend Intensifies

The US labor market continued to show signs of weakness in August 2025, consistent with data trends from previous months. According to the BLS's August non-farm payroll report, the US added only 22,000 non-farm jobs, far below the market expectation of 75,000. This figure not only fell short of expectations but also reflected a continued slowdown in job growth: July's employment data was revised up to 106,000, but June's revision showed a decrease of 13,000 jobs, marking the first negative growth since 2020. The unemployment rate edged up to 4.3%, the highest in nearly four years, with the number of unemployed remaining around 7.4 million.

From a broader perspective, JOLTS (Job Openings and Labor Turnover Survey) data shows that job openings fell to 7.181 million in July, the lowest level since September 2024, and below the market expectation of 7.4 million. This level is close to the pre-pandemic average, but considering the population growth in the United States, it indicates that the current labor market is weaker than it was before the pandemic. The ADP private employment report also confirms this trend: 54,000 new jobs were added in the private sector in August, below the expected 65,000, and significantly down from 106,000 in July. In terms of wage growth, the annualized wage growth rate slightly decreased to 3.8%, while the average weekly hours worked slightly shortened to 33.7 hours.

The distribution of employment growth across industries further reveals structural issues. According to BLS data, employment over the past few months has been primarily concentrated in healthcare and service industries, which benefit from the demands of an aging population. For example, new jobs in healthcare account for nearly 40% of the total, while manufacturing, retail, and construction sectors have experienced job losses. The diffusion index shows that most industries have negative employment growth, indicating that the weaknesses in the labor market are not confined to specific areas but are due to overall insufficient demand. Immigration factors may partially explain the increase in labor supply, but weak demand is even more pronounced.

This data is consistent with longer-term trends: since the beginning of 2024, the average monthly growth of non-farm employment has decreased from 200,000 to less than 100,000. The revision mechanism further amplifies uncertainty. The BLS will release a benchmark revision based on the Quarterly Census of Employment and Wages (QCEW) on September 9, which is expected to show that employment data for the first half of 2025 has been overestimated, with potential downward revisions of hundreds of thousands of jobs. This may strengthen market concerns about an economic recession, similar to the nonlinear effects described by the Sam Rule (a 0.5 percentage point increase in the unemployment rate triggers a recession signal).

The potential impact of a slowing labor market on the economy is significant. If employment continues to weaken, consumer spending may decrease, creating a vicious cycle. Currently, the labor force participation rate has slightly risen to 62.7%, but this is not enough to offset weak demand. Federal Reserve Chairman Powell has previously emphasized a strong labor market, but the latest data suggests that this view is outdated. In contrast, some Fed officials, such as Waller, have warned that the Fed's actions may be lagging and that more aggressive rate cuts may be needed to support the economy.

###Global Bond Market Dumping: Multiple Factors Driving Long-Term Rates Rise

In contrast to the weakness in the labor market, there is a sell-off in the global bond market, particularly with the rise in long-term bond yields. This is not an isolated phenomenon but rather a result of a combination of technical, fiscal, and inflation factors. At the beginning of September 2025, the yield on the U.S. 30-year Treasury bond briefly approached 5%, ultimately retreating to 4.86%. The yields on 30-year bonds in Europe and Japan also rose in tandem, reflecting global pressures.

First of all, technical factors are particularly prominent in Europe. The Dutch pension reform is a key driver: the Netherlands has the largest pension system in the Eurozone, with assets totaling about 2 trillion euros. Starting in 2025, the country will shift from a fixed income pension to a fixed contribution model, meaning pension funds will no longer need to buy large amounts of long-term bonds to hedge liabilities. This has led to a decrease in demand for long-term bonds, pushing yields up. In the first quarter, Dutch pension funds have already lost 54 billion euros in investment value. This reform may impact the entire Eurozone bond market, with the yield on German 30-year bonds rising to its highest level since 2011.

Secondly, the fiscal deficit problem has exacerbated pressure in the bond market. The UK's fiscal deficit exceeds 5% of GDP, and the 30-year gilt yield has risen to its highest level since 1998 at 5.6%. The UK Debt Management Office recently sold £14 billion of 10-year gilts at a yield of 4.8786%, with a premium of 8.25 basis points. The situation in France is similar, with the 2025 deficit expected to reach 5.6%-5.8% of GDP, exceeding the official target. Political uncertainty amplifies risks: the yield on France's 30-year bonds has risen to 4.5%, the highest since the Eurozone debt crisis in 2011. Although the US fiscal deficit is not as severe as in Europe, policy uncertainty (such as potential tariffs) has also raised risk premiums. The US debt-to-GDP ratio has reached 100%, with potential interest expenses increasing by $22 billion.

Third, inflation expectations are another core driver. U.S. inflation is stable at around 3%: the core PCE inflation rate rose to 2.9% in July, the highest since February; the CPI annualized rate is expected to be 2.9%. This makes the 2% target seem distant, and investors are worried about long-term inflation eroding bond values. Japan's inflation is even more pronounced: the CPI fell to 3.1% in July, but still above the Bank of Japan's (BOJ) 2% target. The aging population is exacerbating inflationary pressures: the working-age population has peaked, the labor force participation rate for those aged 65 and over has risen to a high, but the female participation rate has saturated, leading to rising wages. BOJ Governor Kazuo Ueda confirmed at the 2025 Jackson Hole meeting that aging is an inflation factor. The BOJ forecasts a core CPI of 2.4% for FY2025, maintaining the policy rate at 0.5%.

These factors have led to a general rise in global 30-year bond yields: 4.86% in the United States, 5.52% in the United Kingdom, 4.5% in France, and Japan is also continuing to rise. Although short-term yields have fallen due to expectations of interest rate cuts, the curve is steepening, indicating investor concerns about long-term risks.

###Market Reaction and Policy Outlook

Weak employment data triggered fluctuations in asset prices. Gold prices soared to nearly $3600/ounce, rising by 1.4%, benefiting from safe-haven demand and interest rate cut expectations. The dollar index fell to a 16-month low, reflecting the Fed's easing outlook. The S&P 500 initially rose but then pulled back, closing around 6460 points. The market interpreted this as "bad news is good news," but caution is advised: weak data may signal a recession rather than simply being favorable for the stock market.

Federal Reserve rate cut expectations strengthen: The probability of a rate cut in September reaches 100%, possibly by 50 basis points instead of 25. It is expected that there will be three to four rate cuts of 25 basis points throughout the year. Next week's CPI data will be critical: If it is lower than expected, it could drive a larger rate cut. Global central banks like the ECB and BOJ will also adjust policies to respond to fiscal and inflation pressures.

###Conclusion

The slowdown in the U.S. labor market and the rise in global bond yields reflect cyclical challenges and technical adjustments in the economy. Data indicate that insufficient demand and structural issues are dominating the labor market, while the bond sell-off stems from multiple pressures. If inflation remains at 3% and the fiscal deficit is uncontrolled, yields may continue to rise. Investors should follow benchmark revisions and CPI data to assess recession risks. Overall, while these trends increase uncertainty, they also provide room for policy intervention, potentially supporting a soft landing outlook.