Speculation Drives Treasury Yields Higher as Market Awaits US Jobs Report
As traders eagerly awaited Friday’s US jobs report, speculation that bets on rate cuts by major central banks may have gone too far drove Treasury yields higher. The Bank of Japan’s hawkish signals rattled global bonds, raising concerns about the world’s last negative interest-rate regime coming to an end.
The indication from the BOJ sent yields higher across the board, while also driving the Japanese yen up almost 2%. This comes after the bond market saw one of its best months in decades, leading to signs of exhaustion in the market.
Interest-rate strategists at TD Securities recommended taking profits on long positions in 10-year Treasuries ahead of the November employment report, warning that yields are “at risk of backing up sharply.” Mohit Kumar at Jefferies International echoed this sentiment, suggesting that the market may have run ahead of itself given his outlook of only a mild recession.
In the US, data showed that continuing applications for jobless benefits fell by the most since July, but claim rates are still near a two-year high, indicating a cooling labor market. Despite this, US 10-year yields climbed four basis points to 4.14%, with S&P 500 contracts also seeing a mild advance.
The easing rate expectations that played a big part in November’s stocks rally may not tell the full story, according to a reading of cross-asset volatility, which suggests that risks remain choppy and could potentially spark stress for equities.
This week was also marked by corporate highlights such as JetBlue Airways Corp. boosting its full-year financial outlook, Dollar General Corp. reporting better-than-expected sales, GameStop Corp. missing analysts’ estimates, and Elon Musk’s SpaceX discussing insider share sales that could value the company at $175 billion or more.
As the market awaits the US jobs report and other economic data due on Friday, further insights are expected on the state of the global economy and the outlook for key financial markets around the world.
©2023 Bloomberg L.P.