Federal Reserve official’s comments shake bond market expectations for November rate cut | Liz Capo McCormick

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Bond investors pared expectations for an interest-rate reduction in November after a Federal Reserve official opened the door to skipping a cut.

Traders, who boosted their expectations for a quarter-point cut at the Fed’s next meeting after an uptick in jobless claims earlier on Thursday, are already tearing up those bets. They are now pricing in about a 75% chance—versus as much as over 80% earlier in the session—of a November rate reduction after Atlanta Federal Reserve President Raphael Bostic told The Wall Street Journal he would consider a pause in rate cuts.

Also on Thursday, the sale of 30-year bonds at auction saw a strong reception, which included a record allotment to indirect bidders. The long-end out the curve outperformed after the latest auction results, causing some re-flattening of the yield curve. “The September CPI report came in stronger than expected, with core CPI in particular surprising to the upside,” said Whitney Watson, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. “Labor market data, however, remains in the driving seat for the Fed and we see next month’s payrolls release as the more important data point in determining the pace and extent of Fed easing.

“What has continued to be really important is the labor market,” Greg Peters, co-chief investment officer at PGIM Fixed Income, said on Bloomberg Television. “Inflation is still last year’s story. Yeah, there was an upside surprise there, but at the end of the day, it’s about labor, labor and labor.”

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