- US interest futures stayed firm amid shifting Fed expectations.
- The weaker US ADP data weighed on yields but was offset by the Services PMI and jobless claims.
- Markets await the US PCE inflation report ahead of the Fed’s final meeting of the year.
US interest futures remained firm this week, driven by shifting Fed policy, as incoming labor and economic data provided a mixed picture, showing a cooling jobs market but a still resilient economy. The combination keeps traders focused on the final Fed meeting of the year, where markets are now pricing in a 90% probability of another 25-basis-point rate cut. Each of these data points this week directly impacted futures pricing, pushing yields and triggering debates about how deep the Fed’s easing cycle could extend into 2026.
The move began on Wednesday after the ADP report showed a surprising 32,000 job drop in the private sector for November, while markets had anticipated a 40,000 rise. This contraction reversed the October gains, offering clear signs of a softening labor market. Treasury yields slipped immediately, with the 10-year yield dropping to 4.06%, the 30-year yield easing to 4.73%, and the 2-year yield falling to 3.48%. Short-term yields are becoming more sensitive to policy expectations, reflecting a growing conviction that the Fed will raise rates by 25 bps next week. The CME FedWatch tool now shows the probability around 90%.
Analysts describe this shift as unusual. Like, Chrsitphe Rupkey from FWDBONDS noted, the ADP missed some energy in the bonds market’s step. Meanwhile, Chris Zaccarelli from Northlight Asset Management argued that the Fed is prioritizing labor market conditions over inflation. However, the outlook remains uncertain beyond December. Markets anticipate multiple cuts next year, but analysts warn that the Fed could space them out or deliver fewer cuts if the economy shows resilience.
Meanwhile, Thursday’s data briefly interrupted the downward momentum in yields. Treasury yields edged up after Challenger, Gray & Christmas reported that layoffs exceeded one million for the year, amid corporate restructuring, tariff effects, and the impact of AI efficiencies. On the other hand, jobless claims fell below 191k, the lowest level in the last three years. However, some economists mark it as a Thanksgiving distortion.
Despite the recent uptick in yields, U.S. interest futures have hardly moved, as traders continue to price in a December rate cut. With the ISM Services PMI holding at 52.6, the PCE inflation report is yet to be released. The overall narrative remains intact as labor markets cool and inflation risks moderate. Analysts warn that a sustained breakout in 10-year yields could tighten financial conditions and weigh on risk assets.
