As we mentioned earlier, following Fridays weak Job Report US Treasuries rallied, with short-term yields posting their biggest drop since late 2023, after the soft data saw traders increase bets that the Federal Reserve will lower interest rates as soon as next month. The rally accelerated late Friday afternoon in New York after Fed Governor Adriana Kugler said she would step down from her position this month, leaving room for a Trump advocate. Traders boosted bets on Fed rate cuts throughout the session and are now fully pricing in two reductions this year. There’s a 90% chance of the first one coming at the next meeting in September, whereas the chances were less than 40% before the jobs report was released. On Friday, Fed Governors Christopher Waller and Michelle Bowman expressed concerns that policymakers’ hesitance to lower rates could risk damaging the labour market.
- Credit markets are now pricing in at least four interest rate cuts by the Fed over the next 12-months.
