US bond rates turn around and fall awaiting key data from the Fed

The US economic scenario is becoming increasingly uncertain as Treasury bond yields They are stepping back, preparing for the imminent jobs report due this Friday. These data could be decisive for the Federal Reserve in its decision on whether or not to raise rates next month.

Investors remain in suspense, eager to decipher the clues that indicate whether the economy is robust enough for the Federal Reserve continue your path of increases in interest rates.

In recent weeks, long-term returns have climbed to highs not seen in 16 years. This rise is due to the perception that the Fed will keep rates high for an extended period and, possibly, will raise them further if the labor market continues to show strength and inflation remains above the 2% annual target set by the US central bank.

According to economists consulted by Reuters, sAn increase of 170,000 jobs is expected, compared to 187,000 the previous month. Additionally, the unemployment rate is expected to decrease from 3.8% to 3.7%. However, data on Wednesday showed that US private payrolls rose much less than expected last month.

Even though analysts said more data is needed to assess how quickly the labor market is slowing, money markets reduced their bets on a rate hike by the Federal Reserve in November.and. Now, they see a nearly 76% chance that the central bank will keep them stable. A month ago, the probability of a new rise was 55%.

Long-term U.S. Treasury yields eased from 16-year highs, while the yen, which is typically sensitive to these yields, rose 0.3% to 148.6 per dollar. On Tuesday it had reached 150.165 units per dollar, its lowest level since October 2022.

Ian Lyngen of BMO Capital Markets in New York said: “The market is recognizing that not only is the Fed more likely to raise rates again before the end of the year, but the likelihood of cuts in the near future is also very low.“.

A robust labor market

Confidence in the solidity of the labor market was further reinforced more with the latest data indicating that the number of applications for unemployment benefits rose moderately last week, while layoffs declined in September. This suggests that working conditions remain tight.

In this context, The return on benchmark 10-year bonds has experienced a slight decrease of 3 basis points, standing at 4,706%, after touching its highest level since 2007 on the eve Similarly, the yield on two-year notes has given up 5 basis points, standing at 5,020%, after reaching its highest level since July 2006 By the end of September.

The yield curve between two- and 10-year bonds, closely watched by investors, has risen to -29 basis points, marking its lowest point since March. This phenomenon, which usually precedes recessions, raises some concern about the possibility that this movement is a negative omen if it persists over time. Markets remain vigilant, aware that future decisions of the Fed and economic trends are crucially interconnected.