The US bond market continues to show caution, in view of the round of macroeconomic data that will be released this and in the coming weeks, to offer a more certain picture to the members of the FOMC, the Federal Reserve’s monetary policy committee, and give support to other possible rate interventions or postpone them until 2026.
Pay attention to the macroeconomic data
The end of the shutdown has given rise to government activities, which will lead to the publication of all the missing macroeconomic data, as the blockade lasted over 40 days. Government agencies will begin publishing key data such as labor market data and inflation.
The exact timing of some of the postponed publications, particularly the jobs report, has not yet been clarified. The Labor Department admitted last week that it may take some time to reschedule release dates. Furthermore, there is a risk that missing data will be incomplete or unreliable, as it will be difficult to find some information over time.
Meanwhile, the usual ADP report on employment in the private sector is scheduled for this week, which follows the normal timing given that the agency, which is private, has never stopped giving indications on the labor market. However, the September labor market report and requests for unemployment benefits are also on the agenda.
Expectations on the Federal Reserve
The lack of data during the shutdown made it difficult to gauge the direction of the economy. Data from private sources, such as ADP, continued to signal a weakening of the labor market, so much so that on this data the Fed cut interest rates by 25 points in its last two meetings in September and October.
Now, the publication of official data should give more indications and there is a risk that government data could surprise on the upside, highlighting the creation of more jobs than expected. And with the Fed focused on containing inflation, which is still high, bankers could postpone the decision on another rate cut, given that Powell himself has in fact made it clear that the interventions in September and October were mostly precautionary.
Bets on December diminish
Market bets already indicate a high probability of a postponement of the cut to 2026. The December meeting could therefore only be interlocutory, waiting to understand how the economic situation will evolve. The futures market also reveals this, with the FedWatch giving a probability of 56.4% to a failure to intervene and a confirmation of rates at 3.75-4% and a probability of 43.6% to a reduction of 25 basis points to 3.50-3.75%.
The performance of the Treasury
In response, the Treasury yield is repositioning itself at a higher level, since the market is no longer discounting the possibility of cuts in December. The 10-year yield rose to 4.14% from around 4% reached a month ago and is expected to increase to around 4.25% on the expectation of unchanged rates.
In fact, analysts do not exclude the possibility of new increases in the yields of American government bonds, in the event that positive economic data are detected, but it is generally believed that the Fed will continue to maintain a generally accommodating monetary policy stance, even if it were to interrupt the series of cuts started after the summer.
Confirmation also comes from the trend of gold, which remains below the peaks reached recently, but still close to $4,100, waiting to understand how expectations will shift over the next month.
