Data Preview & Forecast
MUFG forecasts July 2026 nonfarm payroll (NFP) growth to be 125k, meaningfully above the median of 80k from Bloomberg contributors, and above the 3-month average growth of 111k.
The unemployment rate (U/R) is expected remain at 4.2% in July, consistent with the 4.2% median estimate from Bloomberg contributors. Last month’s sharp decline in labor force participation of prime-age workers is expected to partially reverse in July, but accelerated hiring is expected to offset increases in new/reentrants.
Health care is expected to be the primary driver of jobs growth, and a recovery in demand is expected in leisure & hospitality following a negative June print. Falling initial/continuing claims and exhaustion rates point to stronger labor demand, and increased industrial production implies stronger manufacturing and adjacent growth.
Market Thoughts
Base-case risk: If NFP is within a 125-150k range, and/or if prior months get revised higher, this will be a decent surprise to markets, triggering a selloff. However, heading into this release date, most points on the yield curve are near their highest level going as far back as 20 years of NFP releases. In addition, rates have built in some concession ahead of NFP and therefore, we likely need to see an even larger data beat to see a sustained sell-off beyond 10bps in the 2yr (which would bring 2s back into the 4.35-4.40% buy-zone levels).
Downside risk: If we get another back-to-back weak NFP print and no upward revisions, the rates market would breathe a sigh of relief, but the rally would be muted given upcoming UST auctions and CPI next week. A weak report would see curve steeper and 2s rallying 3-5bps.
Upside risk: Our NFP forecast is already above consensus, so an even stronger number could result in ranges broken to the upside
Please see the link for the full write-up with charts and scenarios…