Stronger-than-expected U.S. employment data in March boosted expectations of a rate hike at the Federal Open Market Committee (FOMC) meeting in May.
After the release of the employment data, US Treasury yields rose, mainly for bonds with shorter maturities. Interest rate swap markets have priced in a rate hike at the FOMC’s next meeting in May, about 18 basis points above the current effective federal funds rate of 4.83%. That suggests a more than two-thirds chance of a 0.25-point rate hike. Before the stats were released, it was around 14 basis points.
Yields on two-year bonds surged 14 basis points to 3.97%. The 10-year yield rose 7 basis points to 3.38%. Inverted yields on 2-year and 10-year bonds widened.
What’s Priced In?
Fed-swaps price increased odds of a 25bp May rate hike after March jobs report
Source: Bloomberg
Priya Misra, global head of rates strategy at TD Securities, said the “overall strength” in the jobs report “increases the odds of a 25 basis point rate hike at the May meeting and pushes back the timing of the rate cut.” It should be,” he pointed out. “This will allow the FOMC to raise rates in May, but the market will continue to focus on other, less laggy data and bank results,” he said.
In the foreign exchange market, the dollar rose against the yen and the euro after the release of employment data.
U.S. Jobs Growth Slows, Unemployment Falls – Mixed Signals for Fed (2)
Original title:Fed Traders Boost May Hike Bets After Better-Than-Expected Jobs(excerpt)
