On Wednesday, the "favorite employment indicator" of the Federal Reserve collapsed, with JOLTS job openings unexpectedly weakening to the lowest level since early 2021. The evidence of a weak labor market has strengthened market expectations for a significant interest rate cut by the Federal Reserve, and has also caused a sharp drop in U.S. bond yields. As the "anchor of asset pricing", the yield on U.S. 10-year Treasury notes fell 7.5 basis points to 3.768%. $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ The yield on U.S. 10-year Treasury notes, as the "anchor of asset pricing", fell 7.5 basis points to 3.768%.

However, there are currently traders betting that tomorrow's non-farm payroll report will be very strong, which may push US bond yields up by 25 basis points and break through the key level of 4%.

Analysis points out that in order to showcase a 'strong economy' before the election, the US Labor Department may 'adjust data' to create a strong labor market scenario. On Wednesday, the demand for put options on 10-year Treasury notes increased significantly, and some investors bet that US bond yields will rise to 4.05% by Friday.

Put options have significantly increased, with traders betting on a surge in US bond yields.

On September 5th, the well-known financial blog ZeroHedge pointed out that although the JOLTS employment report performed poorly, the market seemed to misjudge its importance by mistakenly equating a lagging employment report with the upcoming latest data. The JOLTS report usually lags behind the non-farm payroll data by one month, and with recent frequent data revisions, the US Bureau of Labor Statistics may once again create a 'stronger labor market' scenario by adjusting the data. In any case, the Federal Reserve may cut interest rates by 25 basis points in September to meet the political demand of showcasing a 'strong economy' in the two months before the election.

Last week, ZeroHedge predicted on social media:

Anyone expecting weak employment report next week (non-farm) will be very disappointed: that's why there was a downward revision before. Now, the Bureau of Labor Statistics (BLS) will continue to manipulate or adjust its targets through data manipulation, making the economy look 'as strong as possible' in the two months before the election.

It indicates that once the employment data announced on Friday is 'hot', the market will immediately reverse the 'economic hard landing' expectations of the past few days and cause a rapid surge in US bond yields. ZeroHedge adds that in August, the non-farm payroll could reach 0.2 million, higher than the market's general expectation of 0.165 million, and higher than July's 0.114 million. The expectation of an economic hard landing has raised the probability of a 50 basis point rate cut in September to 50%.

The market seems to have reached a consensus on this. Bloomberg's short-term interest rate expert, Edward Bolingbroke, pointed out that demand for put options on 10-year treasury notes significantly increased in early trading on Wednesday, with some investors betting that US bond yields will rise to 4.05% on Friday. Some traders have invested millions of dollars betting that US bond yields will soar in the next 48 hours.

The main risk event in the options market this time is the non-farm payroll report on Friday. In other words, some people are betting that the report will be strong, driving a sharp increase of 25 basis points in the 10-year US bond yield.

Although most investment banks still hold a 'dovish' stance, some selling institutions expect there to be a massive short covering after the release of the employment report. Citigroup strategists previously recommended short positions on 10-year US treasuries, believing that if the employment data meets expectations, interest rates will rise because the 'labor market has not deteriorated significantly.'

ZeroHedge states that whether it's for political needs or as a result of capital flow, at least one trader has wagered millions of dollars that the non-farm payroll data will push up US bond yields.

Currently, the 10-year US bond yield remains at a two-week low.

Data released on Wednesday showed that there were 7.673 million job vacancies in the US in July, the lowest level since early 2021, well below the expected 8.1 million, and revised down from the previous value of 8.184 million to 7.91 million. Citigroup stated that if Friday's non-farm payroll report confirms that the labor market is deteriorating, it is expected that the Federal Reserve will cut interest rates by 50 basis points in September and another 50 basis points in November.

After the release of the US JOLTS data, the yield on the 10-year treasury note fell by 7.5 basis points to 3.768%, the lowest level since August 21. Currently, the yield on the 10-year US treasury note remains at a two-week low level, reporting 3.769%.

Editor/Rocky