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US Treasury yields surged higher by 12-14bp across the curve following a strong jobs report. US Non-Farm Payrolls (NFP) came at 303k for March, much higher than the surveyed 214k and the 270k pick-up seen in February. Average Hourly Earnings (AHE) YoY rose 4.1%, in-line with expectations and lower than February’s 4.3% print. The Unemployment rate dropped to 3.8% from 3.9%, in-line with expectations. Dallas Fed President Lorrie Logan said that she believed it was “much too soon to think about cutting interest rates”. Echoing the cautious remarks was Fed Governor Michelle Bowman, who stated that “we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation”.
Following the stronger than expected jobs report and cautious commentary by Fed speakers, the probability for a 25bp rate cut in June has dropped to 46% from 55%. As per CME probabilities, markets are now only pricing in 50bp in Fed rate cuts this year from the earlier 75bp. Treasury yields have also jumped higher this month, particularly on the mid and long-end, with only a week having passed. 5Y, 7Y and 10Y yields are up 20bp in April while the 2Y is up 15bp thus far. US IG CDS spreads tightened 1bp and the HY spreads tightened 4.9bp with the S&P and Nasdaq closing 1.1-1.2% higher.
European equity indices ended lower. European IG CDS spreads widened 1.1bp and crossover spreads were 3.5bp wider. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads were 1.6bp wider.
This is a ratio applied to Turkish banks’ liabilities wherein, the level of securities that banks must hold is based on the target for the share of Turkish lira deposits in their total deposits. This was implemented a few years ago by the CBRT as part of its “liraization strategy”.
On PIMCO trims 2024 Fed rate cut expectations to 2 after jobs report
Mike Cudzil, a managing director and generalist PM
“We did have two to three cuts this year and our base case now is most likely two cuts this year… Directionally this means a little bit less out of the Fed, and that’s a good thing, the economy is proving for now that it can handle higher rates”
On ‘Upside’ inflation risks keep Fed officials wary of turn to rate cuts
Thomas Simons, US economist at Jefferies
“The Fed does not know what path the data is going to take… today’s data will not motivate Fed officials to lean more towards a rate cut any time soon”
Michael Feroli, JP Morgan’s Chief US Economist
“Apparent absence of any cracks developing on the (labor) demand side should lessen the urgency to ease policy, and we are pushing back our call for the first Fed cut from June to July”