(Bloomberg) — Core U.S. Treasury yields are at 4%, the level last seen in August, as a blowout jobs report dampens the chances of another big interest rate cut from the Federal Reserve.
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Bonds fell on Monday, extending last weekend’s slide following surprisingly strong September payrolls data. The 10-year yield rose four basis points to 4.01%, while the two-year yield rose nine basis points to the same level.
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These moves reflect doubts over the central bank’s next moves. Money markets are unlikely to see another half-point cut this year, while a quarter-point cut in November is firmly in place, now pricing in an 86% probability. For the first time since August 1, year-end cuts are below 50 basis points.
Goldman Sachs Group Inc. including George Cole. Strategists “expected higher yields but expected a somewhat more gradual correction,” they wrote in a note. “The degree of strength in the September jobs report may have accelerated that process, as did renewed debate about the extent of policy restraint and, in turn, the depth of central bank cuts.”
Sep. With two-year yields trading above 10-year rates for the first time since 18, short-dated US Treasuries, which are more sensitive to monetary policy, have underperformed again, inverting a key part of the yield curve. Historically, bond yield curves have sloped upward, long notes that pay higher yields, which has stalled for nearly two years as the Fed aggressively raised rates.
European bonds followed U.S. Treasuries lower. Germany’s 10-year yield rose four basis points to 2.25%, the highest in a month, while its UK equivalent rose six basis points to 4.19%.
The sell-off following Friday’s jobs data was the latest reversal in a year that has forced investors to repeatedly revise their expectations for the economy and central bank policy. U.S. services activity caught traders off guard last week, beating all forecasts and casting further doubt on theories that the economy is deteriorating faster than feared.
Traders are now looking to a series of speeches from Fed policymakers for further clues on the path for rates. Minneapolis Fed President Neel Kashkari, Atlanta Fed President Rafael Bostick, St. Louis Fed President Alberto Musallem and Fed Board Member Michael Bowman were speaking at separate events on Monday.
The market is awaiting US inflation data later this week. The consumer price index rose 0.1% in September, its smallest gain in three months. Fed Chairman Jerome Powell said forecasts released by officials pointed to quarter-point rate cuts at the final two meetings of the year, along with their September rate decision.
“We don’t need a recession to get inflation to a tolerable level, so the central bank is easing policy without waiting for real economic weakness,” said Dario Perkins, managing director of TS Lombard. “By now, everyone should have realized that the Fed is cutting rates ahead of schedule.”
(Curve inversion updates in the fifth column.)
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