Treasuries soar as distorted US jobs data fuels bets on Fed cut

The job report showed just 12 000 jobs created in October, with severe hurricanes and a major strike causing the data to come in well below the median economist forecast of 100 000.

US government debt rallied after the economy generated just 12 000 jobs last month amid storms and strikes, leaving intact expectations that the Federal Reserve will lower interest rates next week.

Treasuries advanced on Friday, led by the short-end, pushing the yield on policy-sensitive two-year notes lower by as much as 10 basis points. Traders added slightly to bets that policymakers will cut rates by a quarter-point on November 7, just two days after the US election. A key gauge of the dollar slumped to touch its lowest in a week.

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“While the Fed will likely attribute some of the weakness in today’s data to one-off factors, the softness in today’s data argues for the Fed to continue its easing cycle at next week’s meeting,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “Sky clearing for a November 25-basis-point cut.”

Traders are pricing in 23 basis points worth of easing in November and a total of 44 basis points by year’s end, implying solid expectations for standard-sized reductions at both of the Fed’s remaining 2024 meetings.

The job report showed just 12 000 jobs created in October, with severe hurricanes and a major strike causing the data to come in well below the median economist forecast of 100 000. The prior month’s total was revised lower to 223 000 from 254 000.

What Bloomberg strategists say… “Hurricane and strike impacts notwithstanding, there is still no smoking gun that the labor market in the US is on the verge of tipping the economy into a recession.” — Simon White, macro strategist.

Money managers had been closely watching Friday’s report as one of the final economic indicators ahead of Election Day on Tuesday and the Fed’s policy decision on Thursday. In the options market, traders had been hedging against a deeper selloff in Treasuries as a Bloomberg gauge of the debt posted its worst monthly loss since 2022 in October.

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“What you are seeing is a repositioning,” Mohamed El-Erian, the president of Queens’ College, Cambridge, said on Bloomberg TV. “People were hedging a little bit because one thing that would have really moved things is a much stronger number, not a much weaker number.”

Volatility has been rising in the bond market in anticipation of the data — and next week’s major events. The ICE BofA Move Index, a closely watched gauge of US bond-market volatility, closed at its highest this year this week, showing that traders are paying up to protect against increased turbulence.

There was “a lot of noise in this number between the revisions, the strike impact, the hurricane,” Jeffrey Rosenberg, portfolio manager at BlackRock told Bloomberg Television. Looking at the broader tone of the economy, the Fed will likely cut next week and in December, then will “see where the data goes and how restrictive policy is,” he said.

“The labour markets are normalizing,” according to Rosenberg. “The soft landing is still the message.”

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