Unemployment data from the US disappointed on Friday afternoon. Although the unemployment rate fell to 4.7% from 5.0% the month before this was not due to a significant number of new jobs being added. In fact, only 38,000 jobs were added in May against a Bloomberg consensus forecast of 160,000. The primary reason for the fall in the unemployment rate was due to the number of Americans dropping out of the labour force.

Only last week, after the US Federal Reserve head Janet Yellen was hawkish on the outlook for interest rates, the market, as indicated by Fed Funds Futures, was pricing in a 30% chance the central bank would raise rates at its meeting this month. Following the jobs data however those odds have been reduced to only 4%. The odds of a rate hike in July have also reduced to only 28% from a previous 55%.

US equity markets fell on the news, although they closed above their session lows. Financial stocks were particularly weak, with lower interest rates damaging for their earnings potential. Government bond prices rallied on the back of the news. This asset class has performed strongly over the year to date, with the yield on the 10 year Treasury falling from 2.27% on the 31st December to Friday’s close of 1.70%. US Treasuries, as measured by the Bank of America Merrill Lynch US Treasury index, have delivered a total return of 4.08% this year in US dollar terms.