(Bloomberg) -- Short-dated Treasuries gained on Friday after a US labor-market report emboldened traders to bet that the Federal Reserve will cut interest rates as soon as June.
Two-year yields, which are sensitive to Fed policy expectations, fell in reaction to a downward revision to January’s job additions and a jump in the unemployment rate. Yields on the maturity were down about 6 basis points to 4.44%. Ten-year yields fell as much as 5 basis points before reversing course to trade little changed.
Swap contracts that predict the Fed’s decisions imply around a total of 98 basis points of Fed cuts by year-end, with a June rate reduction seen as virtually a lock. Last month, these contracts briefly priced in less than 75 basis points of easing this year, down from more than 150 basis points seen early in 2024.
Nonfarm payrolls rose 275,000 last month following a combined 167,000 downward revision to the prior two months. Meanwhile the US jobless rate climbed to 3.9% — a two-year high.
“This is an ambiguous report,” Mohamed El-Erian, president of Queens’ College, Cambridge, and a Bloomberg Opinion columnist, said Friday on Bloomberg Television. So, “high-frequency indicators of economic activity are going to be absolutely essential in the next few months.”
Policymakers in December anticipated three quarter-point rate cuts this year, on average, and traders last month began to contemplate the possibility that the new quarterly forecasts in March will be less dovish.
Treasuries had already been rallying this week following Fed Chair Jerome Powell’s dovish message during his two days of testimony on Capitol Hill. On Thursday, he suggested the central bank is getting close to having the confidence it needs to start lowering rates.
“Last month’s NFP revision is telling, for sure, and the downward revision is much more in line with expectations,” and that drove the dollar lower, said Helen Given, a foreign-exchange trader at Monex. But “pricing in a rate cut in June is a bit overzealous. We saw markets get very ahead of themselves.”
