US bond yields rise, with 2-year rates over 4.2% after Fed officials talked hard about rate hikes

By Vivien Lou Chen and Jamie Chisholm

US bond yields rose on Thursday as Federal Reserve officials continued to reiterate the need for higher interest rates and traders eyed September jobs data due at the end of the week.

What’s happening

What moves the markets

Bond yields rose after the latest US economic data – Wednesday’s ADP jobs report and the ISM services index – came in stronger-than-expected and Federal Reserve officials continued to stress that higher borrowing costs were needed to curb inflation spanning nearly 40 years lasts highs.

San Francisco Fed Chair Mary Daly said Wednesday when asked whether futures markets were pricing in rate cuts next year, “I don’t see that at all.” Similarly, Atlanta Fed Chair Raphael Bostic told the Fed should bring its interest rate target to 4% to 4.5% by the end of this year, “and then stay at that level and see how the economy and prices react.”

Markets are pricing in a 72% chance that the Fed will hike rates another 75 basis points on Nov 2 to a range of 3.75% to 4.5% and 4.75% or more by March respectively the CME FedWatch tool.

The last few sessions have seen sharp swings in sentiment as alternating weaker and stronger than expected economic reports prompted traders to change their bets on whether the Fed could ‘pivot’ its tightening cycle soon. Such swings are reflected in the ICE BofA MOVE Index, a measure of expected bond market volatility. MOVE stood at 152.01 on Wednesday – near the highest level since 2009, when the market suffered from the global financial crisis Data released on Thursday showed that jobless claims rose to a five-week high of 219k. The number of people filing for unemployment benefits last week rose by 29,000, a possible sign of rising layoffs in the US. Economists polled by the Wall Street Journal had expected a total of 203,000 new claims for the seven days ended October 1. The next few days will bring important data that investors expect could influence Fed deliberations. The September Nonfarm Payroll Report is due Friday, while producer and consumer price data are due next Wednesday and Thursday.

What Analysts Say

“The job market is still solid, but it’s softening,” said Bill Adams, Comerica Bank’s chief economist. ”

“If the unemployment rate ticks higher, wage growth will likely slow and tame some of the inflationary pressures in the US economy,” he said. Despite this, “inflation faces upside risks from OPEC and Russia-Ukraine oil supply cuts on the one hand, and downside risks from the real estate crisis on the other.”

-Vivien Lou Chen

(ENDS) Dow Jones Newswires

10-06-22 0955ET

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