(Bloomberg) — US Treasuries plunged as evidence of a resilient labor market pushed traders to shift their expectations for the Federal Reserve’s next interest-rate cut to the second half of the year.
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The selloff pushed yields higher across the curve on Friday after US employment in December advanced by the most in nine months, sending the yield on the 30-year above 5% for the first time in more than a year. Ten-year yields rose to the highest since 2023, while those on notes maturing in two to seven years all rose by more than 10 basis points.
“Looks like a really strong report across the board, pushing yields higher and the curve flatter,” said Zachary Griffiths, head of investment-grade and macroeconomic strategy at CreditSights. “It’s causing a more material repricing of near-term Fed expectations, resulting in the more conventional bear flattener.”
Swaps traders are pricing in about 28 basis points of total Fed cuts this year, compared to about 38 basis points before the data release. A full quarter-point reduction isn’t seen until around September, from around June before the report. It was briefly pushed out to as far as October.
US yields have climbed some 100 basis points since the Fed began cutting interest rates in September, with policymakers in December made clear they were eager to slow down the pace of reductions.
“This is pricing out any need for the Fed to be cutting,” Jeffrey Rosenberg, portfolio manager at BlackRock Inc. said on Bloomberg Television. “Financial conditions are really undermining the Fed’s view that their policy is really that tight.”
–With assistance from Kristine Aquino.
(Adds 30-year yield move above 5%, updates with latest Fed pricing.)
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