Aug. 5 (Reuters) – Weak jobs data heightened concerns that the U.S. economy could head into recession, with traders pricing in a big interest rate cut from the Federal Reserve on Monday. US bond yields fell.
The yield on two-year U.S. Treasuries, which is sensitive to Fed interest rate expectations, fell to 3.691% in European trading, its lowest level since May last year. The previous rate was 3.77%, down 10 basis points (bp).
Yields, which are inversely proportional to prices, plunged 53 basis points last week.
Friday’s nonfarm jobs report showed the U.S. unemployment rate unexpectedly rose and job growth slowed in July, and came after a string of disappointing earnings results from big tech companies. , sparking a global stock market sell-off and sending investors into safe-haven assets.
Investors were also grappling with the dramatic rise in the Japanese yen that rocked Japanese markets, contributing to a rally in the Nikkei 225 stock index (.N225), which on Monday hit its biggest single-day gain since 1987. It recorded a decline of 12.4%, which is the lowest decline rate. S&P 500 futures fell 2.7%.
The benchmark 10-year US Treasury yield fell 5 basis points to 3.742%, hitting a one-year low of 3.678% in early trading. Yields fell nearly 40 basis points last week, the biggest weekly decline since March 2020.
Michael Widener, co-head of global fixed income at Lazard Asset Management, said the bond market’s rally has been fueled by investors concerned about their positions in tech stocks and the summer market downturn.
“The movement, especially in the last two days, is more due to a correction in the U.S. stock market than to fundamentals,” he said.
“We still believe that a soft landing (for the economy) is more like our base case scenario.”
reuter graphics
Markets currently expect U.S. interest rates to fall by about 125 basis points this year, up from about 90 basis points on Friday and 50 basis points early last week.
Based on derivative market pricing, traders now believe a 50bp rate cut in September is almost certain.
The closely watched US 2-10 year yield curve narrowed its inversion to 2 bps, the lowest level since July 2022, reflecting expectations for a sharp easing in short-term yields.
Sign up here.
Reporting by Harry Robertson in London and Uncle Banerjee in Singapore. Additional reporting by Chibuike Oguh in New York. Editing: Kirsten Donovan
Our standards: Thomson Reuters Trust Principles opens in a new tab
Purchase license rights
Source link
