Non-farm payrolls exceeded expectations! U.S. Treasury yields surged across the board by 5 basis points, with rate cut expectations retracting to less than twice for the entire year

The Zhitong Finance APP noted that the bond market fell on Friday, pushing yields on U.S. Treasuries across all maturities up by at least 5 basis points. The benchmark 10-year U.S. Treasury yield rose by 7 basis points to 4.46%, while the 2-year U.S. Treasury yield, which is most sensitive to Federal Reserve monetary policy, also climbed 7 basis points to 3.99%.

The interest rate swap market shows that traders currently expect a 70% probability of a 25 basis point rate cut before September. The market pricing for rate cuts for the entire year has fallen to less than two times.

According to the latest data released by the U.S. Bureau of Labor Statistics on Friday, non-farm payrolls in the U.S. increased by 139,000 last month, the lowest since February, while the previous two months were revised down by a total of 95,000. The unemployment rate remained steady at 4.2%, while wage growth accelerated. The 139,000 non-farm payrolls were significantly better than the general expectation of around 126,000 to 130,000, while the unemployment rate aligned with economists' expectations.

Jeffrey Rosenberg, a portfolio manager at BlackRock, stated in an interview, "We can see that the bond market is slightly adjusting its expectations for Federal Reserve policy," adding, "The key takeaway is that the labor market is slowing but remains strong."

Pricing of Federal Reserve rate cuts in the swap market

Federal Reserve policymakers have indicated that they need more data to support a rate cut while balancing the risks of high inflation and economic slowdown. Officials stated that it may take several months to clarify the impact of large-scale policy adjustments (especially trade policy) on the economy.

This week's data paints a mixed picture of the job market amid the uncertainty of the Trump administration's tariff war. Private sector employment data showed that hiring in May slowed to the lowest pace in two years, while job vacancies unexpectedly rose in April.

Ed Al-Hussain, an interest rate strategist at Columbia Threadneedle Investments, commented on Friday's report, saying, "These data will not change the Federal Reserve's current policy," and "Some short positions betting on a rate cut this summer may be closed."

Wall Street's predictions for the Federal Reserve's rate cuts this year range from zero to 100 basis points. Most major banks predict only one rate cut, possibly in September or December.

Traders still bet that policymakers will hold steady at the June meeting, with the earliest rate cut possible in September or October.

Lindsay Rosner, head of multi-sector fixed income investment at Goldman Sachs Asset Management, stated, "We expect the Federal Reserve to keep rates unchanged at this month's meeting," adding, "Labor market data needs to soften further before the Federal Reserve may continue its easing cycle."

Strategist Cameron Christ stated, "While the initial reaction in the bond market was mainly focused on the data exceeding expectations (possibly with marginally better headlines), overall, this data did not really change our understanding of the labor market." At the same time, the Bloomberg Dollar Index rose to an intraday high after the report was released, before the gains narrowed. The index has fallen 0.4% this week, as the foreign exchange market increasingly focuses on economic data performance