The US 10-year Treasury yield drops to 4.16%, market focuses on December employment data

Source: BlockMedia Original Title: [New York Bonds] US 10-Year Treasury Yields Drop to 4.16%… Betting Shift Ahead of Employment Report Original Link:

Market Dynamics

On the 5th, the New York bond market saw US Treasury yields decline. Investors adjusted their positions while awaiting the December employment report to be released on the 9th, seeking clues about the Federal Reserve’s (Fed) monetary policy path. Despite recent geopolitical tensions, the Fed’s cautious stance and mixed economic signals have put downward pressure on yields.

The US 10-year Treasury yield fell 2.6 basis points to 4.163% compared to the previous trading day. Yields started around 4.195% at the beginning of trading and gradually declined over time, dropping to around 4.16% after midday. The 2-year Treasury yield also decreased by 2.2 basis points to 3.455%.

Economic Data Impact

The decline in yields is in the context of the Institute for Supply Management (ISM) manufacturing index, released on the same day, showing contraction for the 10th consecutive month, reflecting concerns over economic slowdown. A simultaneous decrease in new orders and rising input costs indicate manufacturing performance is below expectations.

Market focus is centered on the US December employment data to be released on the 9th. According to consensus estimates compiled by Reuters, non-farm payrolls are expected to increase by 60,000 jobs, with the unemployment rate slightly decreasing from 4.6% to 4.5%. This will be an important indicator to determine whether the unexpectedly high unemployment rate last month will persist.

Gnanadi Goldberg, Head of US Interest Rate Strategy at TD Securities, said, “While the labor market hasn’t fully slowed down, signs of weakening are indeed emerging. As data collection becomes more ‘clearer,’ the Fed and markets will better understand the actual economic situation.”

Policy Expectations

Based on the federal funds rate futures market, the probability of a rate cut in March is about 54%. The Fed has already cut rates once at the last meeting and has remained cautious about further cuts.

Niel Kashkari, President of the Minneapolis Federal Reserve Bank, stated, “Although inflation is gradually slowing, the possibility of a sharp rise in the unemployment rate still exists,” emphasizing the Fed’s vigilance. Internally, the Fed generally believes that without clear signals from employment and inflation indicators, they will not rush to adjust interest rates.

Other Factors

Although geopolitical risks temporarily increased, the market overall is more focused on economic fundamentals such as employment and prices. January is typically a period of active issuance of corporate bonds in the US, which may also influence short-term interest rate trends.

Market experts believe that before key employment and consumption data are released, long-term bond yields are unlikely to move in a clear direction. Especially if the unemployment rate remains high, the market may reinforce expectations of an early Fed rate cut.

Goldberg stated, “The likelihood of a sharp deterioration in the labor market in the short term is low, but a rise in unemployment could influence policy tone. In the short term, the 10-year Treasury yield may fluctuate within the 4.10%-4.20% range.”