Fed Rate-Cut Exuberance Ebbs After Jobs Data, Boosting US Yields

The enthusiasm for a Federal Reserve rate cut diminished after a stronger-than-expected jobs report, causing a surge in Treasury yields. Two-year yields, linked closely to the central bank's policy outlook, rose significantly. Swaps traders reduced expectations of aggressive rate cuts next year, adjusting from over 120 basis points to about 110 basis points. The employment report showed better-than-expected nonfarm payrolls and a lower-than-anticipated unemployment rate, leading analysts to believe that the Fed may not rush into rate cuts in the early part of the next year. 

This repricing countered earlier market expectations of rate cuts starting as soon as March. The shift in sentiment affected both U.S. and European markets, with traders scaling back bets on interest-rate cuts. Despite this setback, some investors remain optimistic about buying bonds, anticipating a more moderate pace of rate cuts in the future. The upcoming Fed meeting and inflation readings for November will be crucial in shaping market expectations.

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