The world’s largest economy generated more jobs than anticipated last month, according to data, which raised the yield on U.S. Treasury bonds on Friday and suggested that the Federal Reserve would not be in a rush to lower interest rates anytime soon.
Decline In Unemployment
According to data, the number of nonfarm payroll jobs in the United States increased by 303,000 in March, exceeding estimates of a 200,000 gain.
In contrast to expectations of 3.9%, the unemployment rate decreased to 3.8%, and average monthly earnings increased by 0.3%, in accordance with consensus estimates.
“The headline, revisions, unemployment rate, and average hourly wage all exceeded expectations; there aren’t many glaring flaws in this data, so I believe it will be challenging.”
“The market is pushing Fed rate cut expectations a little bit further out on this reading, and of course you’re seeing Treasuries bear flatten on this report, so not surprising there.”
The US 10-year yield increased 7.1 basis points (bps) to 4.387% after the release of the report. With a 7.2 bps increase, the two-year yield was 4.712%.
After the late-night employment data on Thursday, the yield curve momentarily flattened, or worsened, its inversion.
Growing Inflation
There was a maximum difference of minus 37.6 basis points between the US two- and 10-year notes. The curve was recently at minus 33.5 basis points, down from minus 34.3 basis points on Thursday.
This curve, which is essentially a “bear flattener,” denotes a situation where short-term rates are increasing more quickly than long-term ones.
This raises the possibility that the Fed will decide to boost interest rates or maintain them higher due to growing inflation expectations.
The odds of a June rate cut have dropped from 66% late on Thursday to 56.3% in the wake of the jobs report, according to the CME’s FedWatch tool.
According to LSEG’s rate likelihood tool, the market has also reduced expectations for rate reduction to less than three this year, down from three to four a few weeks ago.
