(Reuters) — The yield on the 10-year US Treasury note has surged to 4%, reaching levels last seen in August, driven by a strong jobs report that has prompted traders to rethink their expectations for monetary policy.
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Bond prices experienced a sharp decline on Monday, extending losses from the previous week, after September’s robust payrolls data diminished the likelihood of a significant interest rate cut from the Federal Reserve. The 10-year yield climbed by four basis points to 4%, while the two-year yield approached this level, rising by six basis points to 3.98%.
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This shift reflects growing uncertainty regarding the Fed’s future actions, as the possibility of a 50-basis-point rate cut at the upcoming November meeting has been completely discounted; even a cut half that size is no longer fully priced in, according to market swaps.
Goldman Sachs Group Inc. strategists, led by George Cole, commented in a note, “We anticipated an increase in yields but expected a more gradual adjustment. The strength of the September jobs report may have hastened this process, reigniting discussions on the extent of policy tightening and, consequently, the magnitude of Fed rate cuts.”
European bond yields followed the US Treasury market lower. The German 10-year yield jumped by four basis points to 2.25%, its highest level in over a month, while the UK equivalent rose by five basis points to 4.18%.
Market Watchers Brace for Uncertainty Following Jobs Report
The sell-off triggered by Friday’s employment data is the latest development in a tumultuous year that has forced investors to revise their economic and Fed policy expectations repeatedly. Surprising strength in US services activity last week surpassed all forecasts, adding to doubts about the narrative of a rapidly deteriorating economy.
The weakness in shorter-dated US Treasuries, which are more sensitive to monetary policy changes, has brought a key section of the yield curve close to inversion once again. Historically, longer-term bonds offer higher yields, but this norm was disrupted for nearly two years during the Fed’s aggressive rate hikes. The yield curve began to normalize last month, with two-year yields slipping below 10-year yields.
Traders are now looking ahead to US inflation figures later this week. Expectations point to a modest 0.1% increase in the consumer price index for September, marking the smallest gain in three months. Fed Chair Jerome Powell has indicated that officials’ projections released alongside the September rate decision suggest quarter-point rate cuts at the final two meetings of the year.
(This article has been updated with pricing information.)
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