First time please add fuel to the fire? Strong employment data overshadowed safe-haven purchases, and the US debt sell-off storm continues ·  Jan 19 09:29

Source: Finance Association

① US bond yields rose further on Thursday, indicating that the bond market sell-off storm since the new year continues; ② The data released on the same day shows that US employment growth is still steady, consolidating the arguments of Federal Reserve officials over the past few days that they will not rush to cut interest rates.

US bond yields rose further on Thursday, indicating that the wave of sell-off in the bond market since the new year continues. The data released on the same day showed that employment growth in the US is still steady, consolidating the arguments of Federal Reserve officials over the past few days that they will not rush to cut interest rates.

Market data shows that most US bond yields of various matrices rose overnight; only 2-year US bond yields fell slightly. By the end of the New York session, 2-year US Treasury yields fell 0.2 basis points to 4.365%, 5-year US Treasury yields rose 2 basis points to 4.052%, 10-year US Treasury yields rose 3.8 basis points to 4.145%, and 30-year US Treasury yields rose 5.2 basis points to 4.367%.

Although US bond yields fell somewhat during Thursday's Asian and European sessions due to risk aversion surrounding the Red Sea situation, the bearish trend in the bond market once again prevailed after entering the New York session, as data released by the US Department of Labor showed that the number of jobless claims fell to the lowest level since the end of 2022 at the beginning of last week, which indicates that employment growth in January may remain steady.

According to the data, the number of initial jobless claims in the US fell by 16,000 to 187,000 in the week ending January 13, lower than the expectations of all economists surveyed by the media. New York State saw the biggest drop, with an unseasonally adjusted drop of more than 17,000 people.

Although weekly unemployment claims tend to fluctuate a lot, particularly around the holidays, the 4-week moving average of first-time jobless claims also reflected similar signs of strong employment — the number fell to 203.25 million, the lowest level in 11 months.

Furthermore, in the week ending January 6, the number of people continuing to claim unemployment benefits also declined for the third week in a row, falling back to 1.806 million, the lowest since October.

In fact, a series of US economic indicators in recent days have shown that even though the Fed's interest rate is at its highest level in decades, the US economy is still very resilient, which indicates that the Fed may not relax monetary policy as quickly as the market expects.

Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, said, “The possibility of interest rate cuts in March is slipping through the fingers of the market. Time is running out now, and the data is still very strong.”

Thomas Hayes, chairman and managing director of Great Hill Capital, also stated, “This certainly supports the view that the Federal Reserve may not cut interest rates in March (interest rate), and maybe in June. Overall, of course, as the inflation rate falls steadily, they will cut interest rates this year; the question is how much.”

On Thursday, the Federal Reserve's voting committee and Atlanta Federal Reserve Chairman Bostic once again threw cold water on expectations of the Federal Reserve's aggressive interest rate cuts. Given the potential economic impact of various unpredictable events, from the US domestic election to global conflict, he urged Fed policymakers to be careful about cutting interest rates.

Bostic pointed out, “In such an unpredictable environment, it is unwise to lock in a definitive monetary policy position, which is why I think the situation should be allowed to continue to develop until the process of policy normalization begins.”

Bostic also said he would like to see more signs that inflation is on track to reach the central bank's 2% target. He now anticipates that interest rate cuts will not begin until the third quarter.

Federal Reserve officials, including Governor Waller, have already refuted the market's expectations that the Federal Reserve will carry out a round of aggressive interest rate cuts earlier this week, suggesting that interest rate cuts will be later than market participants initially anticipated, and slower than market expectations.

On the supply side, demand for the US Treasury's $18 billion 10-year inflation-protected bond (TIPS) bid on Thursday was strong overall. The bid yield for this bid was 1.81%, more than 2 basis points lower than the expected yield at the end of the bid, indicating that investors did not require a premium to absorb this batch of bonds. The bid multiplier for measuring demand was 2.62, higher than the past year's average of 2.44. Indirect bidders bought 79% of the circulation, compared to an average of 76% over the past year.


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