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(Seoul=Yonhap Infomax) Sung Jin Kim—US Treasury prices rose, led by short-dated maturities, resulting in a steeper yield curve (bull steepening).
News that the US unemployment rate in September climbed to its highest level in nearly four years reignited market bets that the Federal Reserve (Fed) could cut rates as early as December. Despite strong earnings from Nvidia, the New York stock market reversed sharply lower during the session, further fueling expectations for a rate cut and supporting Treasury gains.
According to Yonhap Infomax’s overseas rates intraday screen (screen no. 6532), as of 15:00 (US Eastern Time) on the 20th, the yield on the 10-year US Treasury note stood at 4.1050%, down 2.70 basis points from the previous day’s 15:00 level.
The policy-sensitive 2-year yield fell 4.00 basis points to 3.5580% over the same period.
The 30-year Treasury yield, the longest maturity, dropped 2.00 basis points to 4.7310%.
The yield spread between the 10-year and 2-year notes widened from 53.40 basis points to 54.70 basis points.
Bond yields and prices move inversely.
US Treasury yields, which entered New York trading with modest gains, swung sharply after the September employment report was released at 08:30. When the headline nonfarm payrolls figure came in much stronger than expected, yields spiked briefly, but quickly reversed lower as focus shifted to the unemployment rate. In the Fed’s quarterly economic projections, the key labor market metric is the unemployment rate.
According to the US Department of Labor, nonfarm payrolls in September increased by 119,000 from the previous month—more than double the market consensus of 50,000.
However, the previous two months’ figures were revised down by 33,000. The August figure was revised from a 22,000 increase to a 4,000 decrease, marking a directional shift.
The unemployment rate for the same month rose 0.1 percentage point to 4.4% from the previous month, the highest since October 2021 (4.5%). Analysts had expected it to remain at 4.3%.
Olu Sonola, Head of US Economic Research at Fitch Ratings, said, “The upside surprise in nonfarm payrolls is positive, but it is likely to have a negative impact on the outlook for a December rate cut.” He added, “The slight rise in the unemployment rate complicates the choice between stronger job growth and higher unemployment—good news may not be as good as it seems.”
Stephen Stanley, Chief Economist at Santander US Capital Markets, noted, “The unemployment rate is trending higher, but for the ‘right’ reasons—labor force participation is rising much faster than job growth.” The labor force participation rate in September was 62.4%, up 0.1 percentage point from the previous month.
Separately, the weekly jobless claims report showed that initial claims for unemployment benefits for the week ending the 15th totaled 220,000 on a seasonally adjusted basis, down 8,000 from the previous week and still low by historical standards.
US Treasury yields moved lower in late morning trading as the New York stock market reversed sharply downward. The Nasdaq index, which had surged as much as 2.6% at one point, turned sharply lower in the afternoon session.
Federal Reserve Governor Lisa Cook, speaking at Georgetown University, warned that asset prices are at historically high levels and face a significant risk of a sharp decline.
“Our assessment is that valuations in several markets—including equities, corporate bonds, leveraged loans, and housing—are elevated relative to historical benchmarks,” Cook said. “Currently, my impression is that the likelihood of a significant drop in asset prices has increased.”
At 13:00, the auction of 10-year Treasury Inflation-Protected Securities (TIPS) saw weaker-than-expected demand, with the yield awarded coming in above market expectations.
According to the US Treasury Department, the yield on the $19 billion auction of 10-year TIPS was set at 1.843%, up 10.9 basis points from the previous auction in September (1.734%).
The bid-to-cover ratio was 2.41, higher than the previous auction’s 2.20 and above the three-auction average of 2.32.
The awarded yield was about 1.9 basis points above the when-issued yield, indicating a higher-than-expected result.
According to CME FedWatch, as of 15:45 in New York, the federal funds rate (FFR) futures market priced in a 39.6% probability that the Fed will cut rates by 25 basis points in December, up from 30.1% the previous session.
The probability of a rate hold fell to 60.4% from 69.9% previously.
sjkim@yna.co.kr
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Note: The prices in the New York bond article are based on 15:00 local time and may differ from closing prices. For New York bond closing prices, refer to the '[US Treasury Yield Electronic Closing Prices]' article released at 07:30.
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