Explain this economic scenario about treasury bill interest rates & employment, please?

Question

This isn't for homework; it's mentioned in a book I'm reading. Wall Street predicted there'd be an announcement of 400,000 new jobs for the quarter. A gov't official 'leaked' that there'd be just 200,000. Treasury bill interest rates immediately fell from 8.00% to 7.90%. Please explain the reasoning behind this.

Answer 1

Bond prices, including Treasury bill interest rates, are all about expectations.

If economic times are good, people are going to want to borrow lots of money so they can make investments, etc. anticipating that they'll have money in the future to pay back any loans. This makes/lets interest rates go up (and bond prices go down)

If times are bad, fewer people want to borrow, so lenders have to entice borrowers by reducing the cost of borrowing, i.e. lowering interest rates.

There are other factors as well. In a booming economy, people want to invest in stocks to take part ownership of growing concerns. So people who want to borrow have to pay more to entice those with money to lend.

When things aren't as good, they prefer the lower risk of lending their money instead. So more people are interested in lending and hence the increased supply lowers the cost of borrowing.

Either way, the results are the same here.

Lots of new jobs means a growing economy, a booming stock market, and hence rising interest rates.

When the government "leaks" that there will be fewer new jobs than Wall St. had expected, the prospects for the economy look less rosy, more people are willing lend, etc. so interest rates, the costs of borrowing money, fall.