US Markets
Monday, October 7th, 2024 4:44 pm EDT
Key Points
- The 10-year Treasury yield rose above 4%, driven by stronger labor market data, despite the Federal Reserve’s recent rate-cutting campaign, signaling market shifts.
- The September jobs report, which showed 254,000 new jobs, exceeded expectations, causing investors to reduce the likelihood of a large rate cut in November. However, the market still expects a 25-basis-point cut.
- External factors, such as rising oil prices and geopolitical tensions, are fueling concerns about potential inflationary pressures, which could influence the Fed’s monetary policy decisions in the coming months.
The 10-year Treasury yield, a critical benchmark for mortgages and car loans, surged above 4% on Monday following stronger-than-expected labor market data. This rise in yields reflects a significant rebound from the 2024 low of 3.58% recorded just over a month ago. As of Monday, the 10-year yield increased by more than 5 basis points, reaching 4.03%, while the 2-year Treasury yield climbed nearly 7 basis points to 4.0%. Bond yields move inversely to prices, meaning when yields increase, bond prices decrease. This jump in yields was driven by several factors, including robust labor market data and shifting expectations regarding Federal Reserve rate cuts.
On Friday, a better-than-expected jobs report for September added to the uncertainty surrounding the Federal Reserve’s next move. Nonfarm payrolls grew by 254,000, significantly surpassing economists’ estimates of 150,000. This stronger-than-anticipated labor market performance has led investors to question whether the Federal Reserve will continue with its expected rate cuts. While the Fed implemented a half-point rate cut in September, traders are now pricing in a 91% chance of a quarter-point rate cut at the Fed’s next meeting in November, as indicated by the CME Group’s FedWatch tool.
Despite the anticipation of a rate cut, there is ongoing debate within the market about the Federal Reserve’s next steps. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, noted that the strong payroll report might prompt the Fed to reconsider cutting rates in November. While Lyngen believes a pause in rate cuts is not the most likely outcome, he maintains the expectation of a 25-basis-point cut at the next meeting. However, the uncertainty surrounding inflation remains, particularly due to external factors like rising oil prices, geopolitical tensions in the Middle East, and China’s stimulus plan. These factors are raising concerns that inflation could re-emerge, potentially driving investors away from bonds and pushing yields even higher.
Looking ahead, investors will closely monitor upcoming economic data, including September’s Consumer Price Index (CPI) report, which is set to be released on Thursday. Additionally, speeches from key Federal Reserve officials, including Neel Kashkari, Raphael Bostic, Michelle Bowman, and Alberto Musalem, are scheduled for Monday, providing potential insights into the Fed’s thinking. The 10-year Treasury auction is also scheduled for Wednesday, offering further clues about market demand for government debt.
The Federal Reserve’s next decision on interest rates is expected on November 7, just two days after the U.S. election, with the October jobs report being released the week before, on November 1. These events will likely play a pivotal role in shaping the Fed’s policy direction in the coming months. Investors remain focused on whether the Fed will continue with its rate-cutting campaign or pause to assess the economic landscape amid rising yields, a resilient labor market, and inflationary pressures.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/10/07/10-year-treasury-yield-slightly-higher-following-bumper-jobs-report.html
