Bond yields fell on Monday, retracing some of the sharp bounce delivered by a much stronger than expected U.S. jobs reportWhat’s happening
The yield on the 2-year Treasury
TMUBMUSD02Y,
3.217%
slipped by 1.2 basis points to 3.206%. Yields move in the opposite direction to prices.
The yield on the 10-year Treasury
TMUBMUSD10Y,
2.804%
retreated 2.7 basis points to 2.808%.
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.033%
fell 3.2 basis points to 3.040%.
The 10-year to 2-year spread of nearly minus 20 basis points means the yield remains inverted, signaling the bond market expects an economic downturn.
What’s driving markets Investors are continuing to absorb Friday’s robust U.S. labor report and its implications for the pace of Federal Reserve interest rate rises as the central bank strives to tackle inflation at multi-decade highs. News that the world’s biggest economy added 528,000 jobs in July, more than twice the number forecast, caused a sell-off in bonds and a spike in benchmark yields as traders added to bets that the Fed will be more aggressive at its next rate-setting meeting. Some of that yield bounce was being pared on Monday. “It is clear that the Fed will need to do more to get the labor market into sustainable balance. The unemployment rate ticked down to 3.5%, the lowest in over a half-century, and average hourly earnings rose a strong 0.5% m/m last month,” wrote economic and policy strategists at JPMorgan Chase in a note.
“Given this source of underlying inflationary pressure, we now think the Fed will raise rates by 75bp in September while we continue to expect 25bp hikes in November and December, bringing the terminal rate to 3.5%-3.75%,” …