10-year yield at 4.06% amid US employment shock… Fed rate cut bets surge

Source: BlockMedia Original Title: [New York Bonds] US 10-Year Yield at 4.06% on Employment Shock… Fed Rate Cut Bets Surge Original Link: US Treasury yields fell due to weak November employment data. The market sees signs of a weakening labor market and expects the Federal Reserve(Fed) to bring forward its interest rate cuts, while the yield curve is maintaining a mild bull steepening(bull steepening) trend.

On the 3rd(local time) in the New York bond market, the US 10-year Treasury yield closed at 4.063%, down 2.7bp(0.66%) from the previous day. This is lower than the previous closing of 4.090%. Treasury prices rose 0.22% to 99-15’6, moving inversely to yields. The 2-year yield fell 3bp to 3.486%, and the 30-year closed down 1.6bp at 4.725%.

The drop in yields was triggered by a much sharper-than-expected slowdown in private employment growth. According to the ADP National Employment Report, private sector jobs in November decreased by 32,000 compared to the previous month. This is well below the market forecast of a 10,000 increase and suggests the labor market may be cooling rapidly. Previously, October’s employment gain was revised up to 47,000.

Signs of job market slowdown are strengthening expectations for an early Fed rate cut. According to CME FedWatch, investors are pricing in an 89% chance of a 25bp(0.25%p) rate cut at the upcoming Federal Open Market Committee(FOMC), a significant increase from 83.4% a week ago. The total rate cut expected for next year is 91bp.

Colin Martin, head of Schwab Bond Research, said, “The key variable for current Fed policy is now employment rather than inflation,” adding, “If the labor market deteriorates sharply beyond a simple cooling, the pace of rate cuts could accelerate.”

Meanwhile, the US services sector maintained a slight expansion. The Institute for Supply Management(ISM) reported that the November Non-Manufacturing PMI was 52.6, little changed from the previous month(52.4). This slightly exceeded market expectations(52.1). However, the employment index remains in contraction territory, fueling uncertainty about the broader economy.

The yield curve showed a 57bp difference between 2-year and 10-year yields, similar to the previous day(57.4bp). However, it widened to 58.3bp intraday, the steepest spread since September. This reflects a “bull steepening” movement, where short-term yields fall faster than long-term yields, signaling expectations for early Fed easing.

The weak jobs data and yield declines have reminded investors of the possibility of a Fed policy pivot, and next week’s Fed rate decision is expected to be a key event determining the direction of the year-end bond market.