Investors hedging against a deeper fall in U.S. Treasury yields are bracing for the upcoming U.S. non-farm payroll report. This data, influenced by recent hurricanes and strikes, will offer crucial insights for the Federal Reserve's meeting. As U.S. Treasuries saw little movement in early Asian trading, the 10-year yield has hovered around 4.3% but may reach 4.5% within three weeks. This comes after a two-year worst monthly performance, as election day and a critical Fed meeting approach. Market volatility indicators hit their highest in a year, indicating traders are preparing for further declines.
According to Jack McIntyre, portfolio manager at Brandywine Global Investment Management, the market is anticipating strong employment data. While weak data could be attributed to strikes and hurricanes, strong numbers might ease the pressure on policymakers to cut rates. McIntyre expects the Fed to cut rates by 25 basis points in their upcoming meeting, aligning with most economist predictions, but notes the Fed might signal a pause in further cuts.
The recent sell-off in U.S. Treasuries pushed yields up by about 60 basis points over the past month, partly due to unexpectedly strong September employment figures. Market volatility has risen due to uncertainties surrounding the tight election race between Donald Trump and Kamala Harris, and the Fed's policy path. The closely watched ICE BofA Move Index, which measures U.S. bond market volatility, reached its highest closing level this year, showing traders are paying a premium to hedge against increased market turbulence.
Traders currently estimate a 90% probability of a 25-basis-point rate cut by the Fed next week. The swaps market anticipates a total rate cut of approximately 117 basis points over the next 12 months, which is about 67 basis points less than earlier predictions in October.
