Wall Street mixed ahead of economic data; CPI in focus

Wall Street stocks closed mixed on Monday as investors braced for a slew of US economic data this week, especially consumer prices, to gauge the outlook for Federal Reserve monetary policy.

The Dow Jones Industrial Average fell. The benchmark S&P 500 index and tech-heavy Nasdaq Composite Index closed higher.

The Russell 2000 Index, focused on small companies, dropped 0.9%.

“The jumping to a rotation towards small cap companies, like the Russell 2000 and cyclicals in general and financials, was a very popular trade a few weeks ago and that’s really unwound itself,” said James Abate, chief investment officer at Centre Asset Management in New York.

“If you look at the trends in earnings and growth, we don’t have a broadening and expanding economy that will support a broadening out yet of growth and stock price appreciation.”

Investors are awaiting Wednesday’s US consumer price index reading and retailer earnings to assess demand by shoppers.

The CPI data is expected to show headline inflation accelerated 0.2% in July from June, but unchanged at 3% on a year-on-year basis.

Money markets are evenly betting on a 25- or 50-basis-point cut in US interest rates in September, expecting a total easing of 100 bps by the end 2024, CME’s FedWatch Tool showed.

Figures for July US retail sales on Thursday are likely to show marginal growth, and investors expect that any weakness in the data could reignite fears of a consumer slowdown and a potential recession.

Walmart and Home Depot are due to report earnings later this week.

“Retail earnings are another indication of the health of the consumer particularly in light of the unemployment rate ticking up in the most recent report,” Abate said.

“One thing that could be a significant disappointment to the market is if the CPI number comes out higher than consensus.”

The S&P 500 gained 0.23 points to end at 5,344.39 points, while the Nasdaq Composite rose 35.31 points, or 0.21%, to 16,780.61. The Dow Jones Industrial Average fell 140.53 points, or 0.36%, to 39,357.01.

Starbucks rose 2.58% on reports that activist investor Starboard Value, which holds a stake in the coffee giant, wants the company to take steps to improve its stock price.

KeyCorp jumped 9.1% after Canada’s Scotiabank bought a minority stake in the US regional lender in an all-stock deal worth USD 2.8 billion. Hawaiian Electric dropped 14.45% after the utility firm raised “going concern” doubts.

Declining issues outnumbered advancers by a 1.46-to-1 ratio on the NYSE. On the Nasdaq, declining issues outnumbered advancers by a 1.54-to-1 ratio.

The S&P 500 posted 10 new 52-week highs and seven new lows while the Nasdaq Composite recorded 51 new highs and 179 new lows.

(Reporting by Abigail Summerville in New York; Editing by Richard Chang)

Treasury yields trade slightly lower ahead of inflation reports

NEW YORK – US Treasury yields slipped on Monday as the market marked time for inflation data later in the week that should be pivotal for Federal Reserve policymakers to confirm if an easing at their September meeting is warranted.

Japanese markets were closed on Monday and many US participants are taking August vacations. So, after the gyrations of a week ago, there was scant motivation to trade ahead of July producer price data on Tuesday and, especially, the release of the Consumer Price Index on Wednesday.

After the Treasury rally over the last week and a half during which a breakout of fear about a recession pushed benchmark yields to 14-month lows, investors are now looking to lock in yields in case of a hard landing, said Robert Tipp, chief Investment Strategist at PGIM Fixed Income in Newark, New Jersey.

Most have not been impressed by soft landings during the 2000s and are thinking: “‘We need to get in here and lock in the long rates even though 200 basis points of cuts are priced in because the next thing you know is it is going to be further than that’,” Tipp said.

With inflation trending toward the Fed’s 2% target and recent payrolls data indicating labor market tightness is abating, the futures market is pricing in at least a 25 basis point ease from the current 5.25%-5.50% Fed funds rate at the next FOMC meeting in September, four quarter-point cuts by the end of 2024 and almost as many next year.

With no August Federal Open Market Committee meeting, it leaves market players to hope Fed chair Jerome Powell signals intentions at the Jackson Hole Economic Policy Symposium next week.

Fed Governor Michelle Bowman softened her usually hawkish tone ever so slightly on Saturday, noting some further “welcome” progress on inflation in the last couple of months even as she said inflation remains “uncomfortably above” the central bank’s target and subject to upside risks.

“The major catalyst this week is CPI on Wed. I would describe it as ‘checking the box’ ahead of a probable September rate cut,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

“As long as the CPI report isn’t tragic, I don’t think there is a lot of ultimate market import in it.”

LeBas added that a few corporate bond deals on Monday were keeping light pressure on interest rates.

Benchmark 10-year note yields were off 3.8 basis points at 3.904%. They rose 15 basis points last week, the largest one-week increase since April, after recovering from last Monday’s sharp sell-off to the lowest since June 2023.

Yields on two-year notes, which typically move in step with interest rate expectations, fell 4.4 bp to 4.0089% having also posted the biggest one-week increase since March after a drop to the lowest level since May 2023.

The yield curve between two- and 10-year Treasury notes steepened 1.2 basis points to minus 10.7 basis points. It steepened to 1.50 basis points a week ago, briefly turning positive for the first time since July 2022.

The breakeven inflation rate on five-year TIPS was 1.9837%, suggesting investors see inflation averaging under 2% over the next five years. The five-year TIPS BEI, fell below 2% on Aug. 2 for the first time since early 2021. The 10-year BEI was 2.1153%.

TIPS ‘real’ yields fell to 1.77% and 1.797% on the five- and 10-year, respectively.

TD Securities said in a note on Monday that real yields look attractive as BEI are too low.

“We look for the Fed to start easing in September, pushing both nominal and real rates lower. However, we expect rates to drift higher in the near term,” the firm said on Monday.

(Reporting by Alden Bentley; editing by Jonathan Oatisand Nick Zieminski)

Yen dips, markets stabilize ahead of US inflation data

NEW YORK – The yen fell against the dollar on Monday in calmer currency market trading as investors weighed the odds of a deep Fed interest rate cut next month ahead of a slew of US economic data after volatile moves last week.

The respite follows a tumultuous week that began with a massive sell-off across currencies and stock markets, driven by worries over the US economy and the Bank of Japan’s hawkishness.

Last week ended calmer, with Thursday’s stronger-than-expected US jobs data leading markets to pare bets for Federal Reserve rate cuts this year.

“All they’re really looking at is to see whether the inflation narrative is going to revive with this week’s (consumer price index), or we’re going to continue with the new narrative of is the economy headed for a recession, typified by what’s going on with the labor market in nonfarm payroll,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.

Still, investors are pricing 100 basis points of Fed cuts by year-end, according to the CME Group’s FedWatch tool, and US producer and consumer price numbers due on Tuesday and Wednesday could shift market perceptions.

“We’re looking at which way the Fed’s attention is going to go. Right now, it’s back on the labor market. That could switch if you get something unexpected in the inflation, CPI numbers, especially if those numbers tick up,” Trevisani said.

The dollar was trading at 147.10 yen, up 0.33%, and was flat on the Swiss franc, at 0.8661.

The euro eased up 0.16% to USD 1.0933, while the dollar index fell to 103.10. Sterling stayed flat at USD 1.2763.

A week ago, the euro rose as far as USD 1.1009 for the first time since Jan. 2.

CARRY TRADES UNWIND

Markets, in particular Japan’s, were rocked last week by an unwinding of the hugely popular yen carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields.

The violent sell-off in the dollar-yen pair between July 3 and Aug. 5, sparked by Japan’s intervention, a Bank of Japan rate rise, and then the unwinding of yen-funded carry trades, caused it to fall 20 yen.

Leveraged funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, US Commodity Futures Trading Commission and LSEG data released on Friday showed.

The yen reached its strongest level since Jan. 2 at 141.675 per dollar last Monday. It is still down around 4% versus the dollar so far this year.

“Comments this morning from an ex-BoJ official summarizing why the BoJ is unlikely to be in a rush to hike rates again has undermined the JPY,” said Jane Foley, head of FX strategy at Rabobank in London.

“That said, with volatility likely to be higher into the end of the year in view of the US election and the likelihood of Fed rate cuts, the market is unlikely to plow back into carry trades.”

(Reporting by Laura Matthews; additional reporting by Iain Withers in London, Vidya Ranganathan in Singapore; Editing by Alex Richardson, Kirsten Donovan, and Jonathan Oatis)

Hedge funds retrench on risk, fearful of increased volatility

NEW YORK – Portfolio managers at hedge funds have retrenched from some of their riskier positions after a volatile week for markets.

A brutal selloff and recovery in global markets in the past week was triggered by the unwinding of billions of dollars worth of yen-funded trades and worries the US economy was heading to a recession. The CBOE Volatility Index ended at its highest close in nearly four years on Aug. 5.

The market rout has been painful for a number of hedge funds. Global macro quantitative funds posted losses between 1.5% and 2.5% between Aug. 1 and Aug. 5., while hedge funds focused on the technology sector were down between 2.5% and 3.5%, according to hedge fund research firm PivotalPath’s exposure model.

“We did see some degree of deleveraging,” said Edoardo Rulli, chief investment officer at UBS Hedge Fund Solutions, which invests in hedge funds. “Not panicking, but portfolio managers reducing positions.”

An unexpected spike in volatility is likely to suppress risk appetite until investors are more comfortable about global growth prospects, according to Sophia Drossos, economist and strategist at Point72 Asset Management.

“When you have a very long-term trade that starts to unwind very abruptly, it does hurt risk appetite. We’ll probably see an environment where investors remain reticent or skittish about taking on too much risk again,” she said. “It could be a headwind for the rest of the summer.” Drossos’ views do not necessarily reflect the hedge fund’s positioning, the fund said.

Leverage used by hedge funds to increase the size of trades is at a record high for the last decade, according to data provided by the Office of Financial Research’s Hedge Fund Monitor. Hedge funds registered in the US ended March with USD 2.3 trillion in borrowing from prime brokers, up roughly 63% from December 2019 and outpacing their assets’ growth.

There has been an unwinding of various positions in the last week.

Commodity-trading advisors (CTAs), or money managers that follow market trends, registered a “sharp unwind” of long equity positions, short yen, and short Japanese and 10-year German bonds starting after the weaker-than-anticipated US job data on Aug. 2, JPMorgan said in a note last week.

A Goldman Sachs’ prime brokerage note to clients also showed on Friday that long/short equity hedge funds have reduced their overall exposure to Japan to 4.8% last week from 5.6% the week before, while cutting overall portfolios’ leverage by almost a percentage point, to 188.2%.

US Commodity Futures Trading Commission and LSEG data released on Friday showed hedge funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, indicating investors have also wound down the yen carry trade.

MACRO CONCERNS

Front of mind now for portfolio managers – and contributing to portfolios’ de-risking – is the state of the US economy, as fears of a recession in the world’s largest economy mounted after the US unemployment rate jumped in July.

Rulli said macro hedge funds are also reconsidering some positions even though they made money during the market rout after being long US rates.

“Macro hedge funds still have conviction around the steepening of the yield curve, but they are taking some profits because obviously it’s done very well over the past four weeks, Rulli said.

Odds of the Federal Reserve cutting rates by 25 basis points or 50 basis points at its next meeting in September are close to the same, according to the CME FedWatch tool on Aug. 12.

“If there is a 50/50 chance between the Fed cutting 25 basis points and cutting 50 basis points, that is maximum uncertainty,” said Richard Lightburn, deputy chief investment officer at macro hedge fund MKP Capital Management. He has been considering potential adjustments in the portfolio to reflect the unknown environment.

“That’s telling you something – the market really doesn’t know what’s going to happen, and that means there’s going to be volatility,” he said.

(Reporting by Carolina Mandl in New York; Editing by Megan Davies and Andrea Ricci)

Oil prices jump on prospect of widening Middle East war shrinking supply

NEW YORK – Oil prices jumped by more than 3% on Monday, rising for a fifth consecutive session on expectations of a widening Middle Eastern conflict that could tighten global crude oil supplies.

Global benchmark Brent crude futures settled higher at USD 82.30 a barrel, gaining USD 2.64, or 3.3%. US West Texas Intermediate crude futures settled at USD 80.06 a barrel, up USD 3.22, or 4.2%. Brent saw its biggest percentage gain for a single trading session this year.

The US Defense Department said over the weekend that it will send a guided missile submarine to the Middle East as the region braces for possible attacks on Israel by Iran and allies.

“We’re piling assets one on top of the other and giving the impression that, if this turns hot, it could also turn ugly,” said Bob Yawger, director of energy futures at Mizuho in New York.

Iran and Hezbollah have vowed to retaliate for the assassinations of Hamas leader Ismail Haniyeh and Hezbollah military commander Fuad Shukr. An attack could widen the Middle Eastern conflict, while tightening access to global crude supplies and boosting prices.

Such an assault could lead the United States to place embargos on Iranian crude exports, potentially affecting 1.5 million barrels per day of supply, Yawger said.

Meanwhile, Israeli forces continued operations near the southern Gaza city of Khan Younis on Monday following an airstrike over the weekend on a school compound that killed at least 90 people, according to the Gaza Civil Emergency Service. Israel said the death toll was inflated. Hamas cast doubt on its participation in new ceasefire talks on Sunday.

“The market is increasingly concerned about a region-wide conflict there,” said John Kilduff, partner at Again Capital in New York. A broadening war could lead Israel to target Iranian oil and hamper crude output from other significant producers in the area, including Iraq, Kilduff said.

Brent gained 3.7% last week while WTI rose 4.5%, buoyed by stronger-than-expected US jobs data that fed hopes for an interest-rate cut in the world’s biggest consumer of crude oil.

“Support is coming from last week’s better-than-expected US data, which eased fears of a US recession,” said IG markets analyst Tony Sycamore.

Three US central bankers said last week that inflation appeared to be cooling enough for the Federal Reserve to cut interest rates as soon as next month.

Rate cuts tend to raise economic activity, which increases the use of energy sources such as oil.

Investors were looking ahead to US consumer price index data for July on Wednesday, which is expected to show month-on-month inflation ticked up to 0.2% after a minus-0.1% reading in June.

Oil prices drew support when consumer prices in China, the biggest global oil importer, rose faster than expected in July.

On Monday Russia evacuated civilians from parts of a second region next to Ukraine after Kyiv increased military activity near the border only days after its biggest incursion into sovereign Russian territory since the start of the war in 2022.

(Reporting by Laila Kearney in New York and Robert Harvey and Paul Carsten in London, Colleen Howe in Beijing, and Florence Tan in Singapore; Additional reporting by Shariq Khan; Editing by David Gregorio, Rod Nickel, and Nick Zieminski)

S&P 500 ends up, but near flat for week after Monday’s steep selloff

NEW YORK – The S&P 500 ended higher on Friday and was little changed for the week after regaining almost all of its losses since Monday’s steep dive that was prompted by fears of a recession and unwinding of a global yen-funded carry trade.

The technology sector gave the index its biggest boost on Friday, and the Cboe Volatility Index, Wall Street’s “fear gauge,” fell after surging at the start of the week.

Monday’s big decline followed a sharp sell-off last week as a weaker-than-expected July jobs report sparked recession fears, and investors unwound currency carry trade positions involving the Japanese yen.

“Investors are trying to find evidence of a bottom,” said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.

On Thursday, Federal Reserve policymakers expressed confidence that inflation was cooling enough to allow rate cuts ahead, and said they will take their cues on the size and timing of those cuts from the economic data.

The Dow Jones Industrial Average rose 51.05 points, or 0.13%, to 39,497.54, the S&P 500 gained 24.85 points, or 0.47%, to 5,344.16 and the Nasdaq Composite added 85.28 points, or 0.51%, to 16,745.30.

For the week, the S&P 500 was down 0.05%, the Dow was down 0.6% and the Nasdaq was down 0.2%.

“There is going to continue to be a significant amount of uncertainty and anxiety hanging over the market for the course of the next month until we get to the next Fed meeting,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

The Fed is expected to cut rates at its next policy meeting on Sept. 17-18, but traders are weighing whether a 25 or 50 basis point reduction is more likely. Traders are currently pricing in a 51% probability of a 50 basis point cut, and 49% odds of a 25 basis point reduction, according to the CME Group’s FedWatch Tool.

Investors also await next week’s readings on US consumer prices and retail sales for July, which could provide fresh evidence on the chances of a soft landing for the American economy.

Even after recent selling, all three major indexes remain solidly higher for the year, with big gains early in 2024 driven by strong earnings in tech-related megacaps and optimism over artificial intelligence.

The S&P 500 and Nasdaq are now each up about 12% since Dec. 31, and the selloff has made tech stocks less expensive based on price-to-earnings ratios.

Among individual gainers Friday, videogame publisher Take-Two Interactive Software climbed 4.4% as it expects net bookings to grow in fiscal years 2026 and 2027.

Expedia also advanced 10.2% after the online travel agency beat analysts’ expectations for second-quarter profit.

Volume on US exchanges was 11.13 billion shares, compared with the 12.59 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 1.39-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored decliners.

The S&P 500 posted 15 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 52 new highs and 159 new lows.

(Additional reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by David Gregorio)

Leveraged funds’ yen net short position shrinks on carry trade unwind

NEW YORK – Leveraged funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, US Commodity Futures Trading Commission and LSEG data released on Friday showed.

The net position for leveraged funds – typically hedge funds and various types of money managers, including commodity trading advisors (CTAs) – was short by 24,158 contracts, compared with a net short position of about 70,000 contracts in the previous week, data as of Aug. 6 showed.

That’s the largest change in weekly net positioning in the yen by leveraged funds since March 2011, LSEG data showed.

“This week marked the culmination of the largest yen short squeeze in 17 years, with leveraged funds and other speculators unwinding bets against the currency at the fastest monthly pace since August 2007,” said Karl Schamotta, chief market strategist at payments company Corpay.

“To paraphrase Mike Tyson, everyone has a plan until the yen punches them in the mouth,” he said, referring to the American boxer.

Global stock and bond markets, in particular Japan’s, were rocked this week by an unwinding of the hugely popular yen carry trade.

That trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields, is being wrecked by Japan’s rate increases, a volatile yen, and imminent rate cuts in the United States and other economies.

The US dollar has fallen 9% against the yen over the past month.

(Reporting by Saqib Iqbal Ahmed; Editing by Rod Nickel)

Optimism rises, but China inflation looms

Asia is set for a positive end to a turbulent week on Friday after a rip-roaring US equity rally on Thursday, although Chinese inflation could temper any optimism if the data shows that the world’s second-largest economy is still in the clutches of deflation.

Wall Street’s resilience was notable given that US bond yields rose again after yet another poorly received Treasury auction, this time 30-year notes. That’s two sales this week that have drawn weak demand, with investors only taking down the paper in return for higher yields.

But the Nasdaq clocked its best day in six months and the S&P 500 its best day since November 2022. Broader indices in Asia and tech in particular should grab the baton and run with it on Friday.

The MSCI Asia ex-Japan index is currently down 1.6% on the week, China’s blue chip CSI300 index down 1.2%, the Hang Seng tech index down 0.6% and Japan’s Nikkei down 3%. Can they muster a rally strong enough on Friday to close the week in the green?

It would represent a remarkable turnaround, especially in Japan where currency- and rates-related volatility earlier in the week triggered some of the biggest stock market moves on record.

The US tech shakeout that began on July 11 is losing steam. The broad S&P Information Technology index and ‘FANGS’ index of Big Tech shares both fell around 20% in the three weeks to Aug. 5 but have rebounded as much as 9% from these lows.

US tech got a boost on Thursday from Meta Platforms’ earnings, and tech stocks in Asia could take their cue next week from Taiwanese chipmaker TSMC’s sales figures on Saturday.

TSMC, the world’s largest contract chipmaker and a major supplier to Apple and Nvidia, on Saturday gives its latest monthly sales update. Sales have been falling in recent months – to TUSD 207.9 billion in June from TUSD 229.6 billion in May, which was down from TUSD 236 billion in April.

Indeed, Taiwan’s exports rose less than expected in July as weak demand from China offset record orders from the United States, which underscored the island’s essential role as a supply hub for the booming artificial intelligence (AI) industry.

Weak demand from China seems par for the course these days, and continues to keep inflation in check.

Figures on Friday are expected to show the annual rate of consumer inflation edged up in July to 0.3% from 0.2%, and the monthly rate climbed to 0.3% from -0.2%. The annual rate of producer deflation is expected to have accelerated slightly to -0.9% from -0.8%.

A positive surprise would be welcome – China’s economic data have been consistently undershooting expectations for months.

Here are key developments that could provide more direction to Asian markets on Friday:

– China inflation (July)

– Indonesia retail sales (June)

– Malaysia industrial production (June)

(Reporting by Jamie McGeever)

Nasdaq, S&P 500 end 2% higher in rally after US jobless data

NEW YORK – US stocks jumped on Thursday, with the Nasdaq and S&P 500 each ending more than 2% higher after jobless claims fell more than expected in the latest week, soothing worries the labor market was weakening too quickly.

All the major S&P 500 sectors rose, led by gains in technology and communication services. Small-cap stocks also rallied, with the Russell 2000 index climbing 2.4%.

Among the S&P 500’s biggest gainers, shares of Eli Lilly jumped 9.5% after the drugmaker raised its annual profit forecast, and sales of its popular weight-loss drug Zepbound crossed USD 1 billion for the first time in a quarter.

Data showed the number of new applications last week for unemployment benefits fell more than expected.

“This was the data point for the week, so it took on added importance,” said Paul Nolte, senior wealth advisor and market strategist for Murphy & Sylvest in Elmhurst, Illinois.

“Our reading on this is the labor market continues to be OK… The recession fears at this point are probably a little overblown.”

Stocks had sold off sharply after last week’s July US jobs report sparked fears of a potential US recession. Traders also cited an unwinding of positions of carry trades, where investors borrow money from economies with low interest rates to fund their bets in high-yielding assets elsewhere.

The Dow Jones Industrial Average rose 683.04 points, or 1.76%, to 39,446.49, the S&P 500 gained 119.81 points, or 2.30%, to 5,319.31 and the Nasdaq Composite added 464.22 points, or 2.87%, to 16,660.02.

The Cboe Volatility index, Wall Street’s fear gauge, was down on Thursday.

“Once volatility gets going, it takes a while for it to calm down,” said David Lundgren, chief market strategist and portfolio manager at Little Harbor Advisors in Marblehead, Massachusetts.

“The fact that we’re up a lot doesn’t necessarily mean the lows are in or that we’re going straight up from here,” he said. “But looking out three months, six months the tendency to experience above-average returns is very high.”

The second-quarter earnings season is winding down, but investors are watching the final results closely after some disappointments earlier in the reporting period.

Shares of Under Armour surged 19.2% after the sports apparel maker posted a surprise first-quarter profit, benefiting from its efforts to cut inventory and promotions.

Volume on US exchanges was 11.98 billion shares, compared with the 12.60 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 3.59-to-1 ratio; on Nasdaq, a 2.76-to-1 ratio favored advancers.

The S&P 500 posted 7 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 32 new highs and 183 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by Varun H K, Shinjini Ganguli, Saumyadeb Chakrabarty, and David Gregorio)

US yields jump on better than expected jobs claims data

NEW YORK – US Treasury yields rose on Thursday after data showed jobless claims were lower than expected in the latest week, boosting confidence that the US economy is less likely to face an imminent recession.

Muted demand for a 30-year bond auction added to the move higher in yields, coming a day after a weak sale of 10-year notes.

Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, the largest drop in about 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week.

“This is a very positive print for markets overall. It reinforces the fact that labor market momentum is not slowing to the same extent that was represented by the payroll report, and it also reinforces the absence of very significant layoffs in the economy,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

Yields had tumbled after Friday’s employment report for July showed an unexpected increase in the unemployment rate, while jobs gains also came in below economists’ forecasts. Falling stock markets partly blamed by traders unwinding popular dollar/yen carry trades added to the demand for safe haven US debt.

But yields have rebounded as investors bet that the fears about the economy were overdone and on optimism that most of the unwind of the carry traders has been completed.

Thursday’s data may lead to further yield increases.

What the data “confirms is that we’re seeing the unemployment rate rise due to new entrants into the labor force rather than a very large amount of layoffs,” Goldberg said. “I suspect that in the absence of data to the contrary, we’ll continue to see the pricing for September rate cuts decline, and yields move higher across the curve.”

The odds of the Federal Reserve cutting interest rates by 50 basis points at its next policy meeting on Sept. 17-18 fell to 54%, from 69% on Wednesday, with a 25 basis point cut now seen as having a 46% probability, according to the CME Group’s FedWatch Tool.

Yields hit session highs after the Treasury Department saw a poor reception for a USD 25 billion sale of 30-year bonds. The bonds sold at a high yield of 4.314%, more than two basis points above where they had traded before the auction. Demand was 2.31 times the amount of debt on offer.

“People are becoming very defensive, just based on the run-up that we’ve had” to higher prices and lower yields, said Tom di Galoma, head of fixed income trading at Curvature Securities.

At the same time, “there’s been a tremendous amount of corporate supply this week – we had a heavy day yesterday and another heavy day today,” he said. “Corporations are taking advantage of the lower funding that they’re able to get just based on the rally that we’ve seen.”

Thursday’s auction followed a weak reception for a USD 42 billion sale of 10-year notes on Wednesday, where investors also appeared to balk at the lower yields following the recent bond rally.

The government saw solid demand for a USD 58 billion sale of three-year notes on Tuesday.

Yields on interest rate-sensitive two-year notes were last up 4.3 basis points at 4.0442%. They fell to 3.654% on Monday, the lowest since April 2023.

Benchmark 10-year note yields rose 3.4 basis points to 4.001%, after reaching 3.667% on Monday, the lowest since June 2023.

The yield curve between two- and 10-year Treasury notes flattened 3 basis points to minus 5 basis points. It reached 1.50 basis points on Monday, turning positive for the first time since July 2022.

The next major US economic release will be consumer price inflation for July on Aug. 14. Comments by Fed Chair Jerome Powell at the Fed’s Jackson Hole Economic Policy Symposium on Aug. 22-24 may also provide new clues on the path of rate cuts.

(Reporting by Karen Brettell: editing by Jonathan Oatis)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Monthly Economic Update: Fed cuts incoming

Consensus Pricing – June 2025