“We expect the Fed would require a clear miss in key dimensions to spur a rate cut this month (payroll growth well below 100,000 and a jobless rate above 4.3 per cent) versus proceeding with the hold that is currently well priced in,” said Andrew Husby at BNP Paribas Securities.
A survey conducted by 22V Research showed most investors are watching payrolls closer than normal. Only 26 per cent of the respondents think Friday’s data will be “risk-on”, 40 per cent said “risk-off” and 34 per cent said “mixed/negligible”.
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Since mid-September, the Fed has cut rates by 100 basis points. Yet the yield on 30-year Treasury bonds has risen by about the same amount. This divergence between short- and long-term rates is counterintuitive and far from isolated, with UK 30-year yields soaring even as the Bank of England eases monetary policy.
The reason: investors are worried that the inflationary pressures sparked by the pandemic will linger in the global economy for years. And what’s more, governments that spent heavily to stimulate economies during coronavirus lockdowns are still borrowing lots of money.
“The back-up in bond yields since mid-September did not surprise us,” said strategists at Yardeni Research. “But it has surprised lots of other financial pundits, who are warning that this could be bad news for stocks. It could be, especially if the 10-year US Treasury bond yield revisits last year’s high of 5 per cent. That would probably bring a buying opportunity in the bond and stock markets.”
Yardeni bets that bond yields have normalised. The 10-year yield should range between 4 per cent and 5 per cent, as it did in the years before the Great Financial Crisis, the strategists noted.
Bloomberg
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