US 10-year yield falls to six-week low after payrolls, market sees possibility of cut in December

The probability of a 25 basis point rate cut this month has increased to 87%, according to the FedWatch tool.

Two-year yields fall to five-week low after payroll report

(Late morning business updates)

New York, December 6 (Reuters) –

US Treasury yields fell to a six-week low after the release of November payrolls data, as investors considered the data a green signal for another rate cut by the Federal Reserve at its December 17-18 meeting.

The yield on the benchmark US 10-year Treasury note fell 3.3 basis points to 4.149%. There was a sharp decline at the front end of the curve, with two-year US Treasury yields falling 5 basis points to 4.096%.

The yield on the 10-year note fell to 4.126% during the session, the lowest since Oct. 21, while the 2-year yield fell to 4.077%, a level not seen since Nov. 1.

A closely watched part of the US Treasury yield curve widened the gap between the yields on two- and 10-year Treasury notes to 5.1 points. Just before the payroll release, the yield curve inverted to negative 7.1 basis points, the lowest in three months.

The probability of a 25 basis point rate cut at the December meeting rose to 89% on Friday, from 70% on Thursday, according to CME’s FedWatch tool.

“It looks like there’s no reason to worry about an impending recession and there’s no reason for the Fed to hold off on cuts just yet,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Jobs increased by 227,000 last month

That follows an increase of more than 36,000 in October, the Labor Department said in its closely watched employment report on Friday. But this does not indicate any substantive change in labor market conditions.

“This morning’s data was a Thanksgiving buffet with payrolls spot on, revisions were positive, but unemployment was moving higher despite a decline in the participation rate. This print doesn’t take away the holiday spirit and the Fed is on track to deliver a cut in December. Is.” said Lindsay Rosner, head of multi-sector investments at Goldman Sachs Asset Management.

Ellen Zentner, chief economic strategist at Morgan Stany Wealth Management, said that although the economy is still generating a good amount of job and income gains, “a further increase in the unemployment rate takes some of the shine off the labor market and the Fed gets it.” There is a need to cut rates in December.

The 10-year yield fell 4.4 basis points this week and the 2-year yield fell 7.6 basis points.

Federal Reserve Governor Mitchell said the central bank will cut rates at its upcoming meeting despite rising expectations.

Inflation risks to the economy remain real and labor market data are difficult to interpret, requiring caution in further decisions on central bank rate cuts.

Also, Austin Goolsbee, President of the Federal Reserve Bank of Chicago

On whether he would support an interest rate cut at the central bank’s meeting this month, he reiterated his view that interest rates will fall over the next 12 months.

The breakeven rate on five-year US Treasury inflation-protected securities (TIPS) was at 2.340% after closing at 2.369% on December 5.

The 10-year TIPS breakeven rate was at 2.258%, indicating that the market sees inflation averaging 2.3% per year for the next decade.

(Reporting by Tatiana Botzer, Chuck Mikolajk, David Barbuscia and Laurence Delevigne; Editing by Mark Potter and Nick Zieminski)