Source: Jin10 Data

After the mixed news from the US labor market report, US bonds rose, pushing yields lower, and traders persisted in betting that Fed officials will lower interest rates this year.

The two-year US Treasury yield, which is more sensitive to changes in Fed policy, briefly fell 8 basis points to 4.62%, the lowest level since April 1. Despite the US government's June employment report showing more job additions than expected, data from the previous months was revised down and the unemployment rate increased.

Derivative traders remain steadfast in their expectation of a US rate cut in 2024. They expect there is about a 70% chance that policymakers will cut rates as early as September. For the entire year of 2024, contracts foresee a total of 48 basis points in rate cuts.

Gregory Faranello, head of US rate trading and strategy at AmeriVet Securities, said: "This is friendly data for the Fed and the US bond market. The Fed will maintain a high level of vigilance on the future employment market."

The US Labor Statistics Bureau said Friday that non-farm employment rose by 0.206 million last month, while employment growth in the previous two months was revised down by 0.111 million. The unemployment rate rose to 4.1% as more people joined the workforce, and average hourly earnings growth slowed.

Although the data supports the bond market's optimistic expectations for the beginning of the Fed's monetary easing cycle, it is not enough to determine the specific time of the first rate cut. Policymakers have kept the benchmark rate at the range of 5.25% to 5.50% for a year.

Jeffrey Rosenberg, portfolio manager at BlackRock Inc., said Friday: "The key to really determining a rate cut in September is another round of data, and more importantly, what we see next week in terms of inflation and obviously next month. There are some cross effects that make the situation a bit tricky."

Next week's economic data will include readings on June consumer and producer price growth. Traders also remain wary of political risks as Biden's chances of reelection fell after the recent debate.

Short-term changes in US bond yield curves have exceeded long-term changes, with benchmark 10-year yields falling by about 6 basis points to 4.30%, while rates on 30-year debt fell by about 2 basis points.

The spread between 2-year and 10-year yields widened to about 33 basis points.

Ian Pollick, global FICC strategy director at Canadian Imperial Bank of Commerce, said: "It is clear that the market wants to maintain long positions in the face of political risks. Ultimately, the yield curve reaction makes sense. However, whether the decline in yields can continue depends on external influences in the coming days, as this is not a 'bad' report."

Editor / jayden