Fed Rate Hike Expectations Plummet After Weak US Jobs Data

Bond traders in the US are now less likely to expect rate hikes from the Federal Reserve after weaker-than-expected job growth was reported for September. According to a Bloomberg survey, economists estimated that the US would add more jobs than it actually did, with nonfarm payrolls increasing by just 29,000 last month.

The data has tempered expectations of near-term rate hikes, with traders now pricing in only about a 20% chance of an October hike. This is down from nearly 30% prior to the data release. Yields on two-year Treasury notes briefly fell after the report but rebounded and were more than a basis point higher by late morning in New York.

Charles Tan, chief investment officer of global fixed income at American Century Investments, said that 'on the margin it gives the Fed more cover to stay on hold and not to hike'. However, he also noted that inflation data could quickly shift expectations back towards a more hawkish monetary policy. Interest-rate swaps showed traders pricing in about a 20% chance that the Fed lifts benchmark borrowing costs at its October meeting.

The report comes as Treasury yields remain near multiyear highs, with the benchmark 10-year yield hitting its highest level since 2002 this week. The data has also led to a change of heart among some traders and strategists, who now expect rate hikes in December and March rather than October and January.