- Treasury yields eased on Thursday as the Trump trade faded.
- US yields fell after the US central bank cut interest rates by 25-bps.
- Data on Thursday revealed that US jobless claims increased marginally from 218,000 to 221,000.
Interest futures rallied on Thursday and Friday as Treasury yields fell after the US central bank lowered rates by 25-bps. The rally came after a dip to new lows due to fears of higher inflation and interest rates with the new Trump administration.
Treasury yields eased on Thursday as the Trump trade faded. Initially, yields had soared soon after the election due to an increased likelihood of higher interest rates. Trump came into power having made proposals to cut taxes and impose tariffs on imported goods. These policy changes might increase inflation, pushing the Fed to pause rate cuts and likely pivot. Therefore, Treasury yields rose at the prospect of higher interest rates, weighing on interest futures.
Meanwhile, on Thursday, yields fell after the US central bank cut interest rates by 25-bps. Market participants expect another such move in December. Moreover, the Fed noted the weakness witnessed in the labor market after the October nonfarm payrolls report. The US reported an addition of 12,000 jobs in October, well below the estimates of 106,000.
Moreover, it was a massive decline from the previous month’s blockbuster report. Most of this decline was expected because of hurricane disruptions. However, the miss in employment was much bigger than economists had forecasted. If this was a one-time thing, the Fed would maintain its gradual pace. However, if this is a new downtrend, rate cut expectations will rise, boosting interest futures.
However, there was also caution about the future, especially after Trump’s win. Higher inflation could complicate the Fed’s rate-cutting cycle.
US jobless claims (Source: Labor Department)
Elsewhere, data on Thursday revealed that US jobless claims increased marginally from 218,000 to 221,000 in the previous week. The increase was smaller than expected, showing the labor market remained steady.
In the coming weeks, investors will pay close attention to economic reports from the US for clues on future policy moves. In particular, markets will focus on employment and inflation. Robust employment and steady inflation could increase the likelihood of a pause at the December Fed meeting. On the other hand, deterioration in the labor market and lower inflation will solidify bets for a rate cut in December.
