Title: Bond Market Lull Before US Jobs Data Triggers Speculation on Interest Rates
Date: October 6, 2023
The bond market saw a temporary respite on Friday as investors awaited crucial U.S. jobs data that could impact the future of interest rates. The brief halt in bond selling may not last long, however, as market participants closely monitor the data for any indications of sustained economic growth.
Oil prices, which experienced a surge followed by a decline, have also provided some relief to the market. Brent crude futures, currently priced at $84.50 a barrel, are significantly cheaper compared to last week’s 11-month high, offering further stability to investors.
While Asia-Pacific shares outside of Japan experienced a 0.9% increase, Tokyo’s Nikkei remained relatively flat. Currency markets remained steady as well. However, the ongoing bond rout has pushed the U.S. dollar towards its 12th consecutive week of gains, underscoring the risk appetite for investors.
Throughout the Asia session, ten-year U.S. Treasury yields remained steady at 4.72%, momentarily calming concerns about the five-week-long selloff that has affected bond markets globally. However, with a 55 basis point climb, investors remain cautious about the potential impact on risk-taking.
Analysts at Rabobank note that the recent sharp sell-off in bonds could lead to its own reversal, as tighter financial conditions are expected to weigh on demand and potentially indicate that policy rates have peaked rather than pausing.
Given the significance of U.S. non-farm payrolls data, which is scheduled to be released at 1230 GMT, market participants are treading cautiously and refraining from making significant bets. Economists polled by Reuters anticipate that the data will reveal an addition of 170,000 U.S. jobs last month. However, estimates range as high as 256,000, leading to heightened uncertainty.
“It’s hard to disentangle where people are sitting, but the market won’t want to see a strong number for sure,” warns Jason Wong, a strategist at BNZ in Wellington.
Continuing the streak of the dollar’s longest winning run against the euro, another round of bond selling could further propel the dollar. As the dollar index maintains its upward trajectory, the euro remains pinned near an 11-month low, while sterling lingers close to a seven-month trough.
Only the Japanese yen has showcased any resistance, possibly sparked by a sudden jump in the currency during the London afternoon on Tuesday, which led to speculation about potential intervention by authorities. However, no anomalies in Japanese money-market data were found to support this theory, leaving traders alert but cautious.
At the end of this week, gold prices have stabilized at $1,822 per ounce after a nine-day losing streak caused by rising global bond yields. With labour market data, U.S. Treasury supply, and CPI data due next week, analysts anticipate that the brief pause in the bond market may be short-lived.
“If the labour market data is strong, pressure will return sooner than it did last year. I still think the Treasury market will take yields higher until something breaks in the system,” suggests Kit Juckes, a Strategist at SocGen.
As investors eagerly await the release of the U.S. jobs data, all eyes remain on the potential implications for interest rates and the future trajectory of global markets.
Disclaimer: This article is intended for informational purposes only and should not be construed as financial advice.