Bond Market Parties On as Jobs Data Revive Fed Rate-Cut Bets

-- The world’s biggest bond market is back in celebration mode after its worst month in more than a year.Turkey Confirms All Trade Halt With Israel Over War in Gaza

Expectations for Fed rate cuts — which traders at the start of the year wagered would total at least 150 basis points — dwindled nearly to a single, 25-basis-point cut, and not until December.The US government’s April employment report brought a reprieve. Job creation slowed to 175,000, the smallest gain in six months, the unemployment unexpectedly rose to 3.9% and wage gains slowed.

Bonds’ recovery began after Powell in the news conference after the Fed’s most recent policy meeting downplayed the chances that the central bank would resume raising rates. Friday’s rally may have been aided by investors scrapping positions that anticipated yields would continue to rise, in addition to the establishment of new positions predicated on further yield declines. Transactions included several large block trades in short-term interest rate futures, used by traders to wager on the outlook for Fed policy.

The ICE BofA MOVE Index — a gauge of bond volatility that tracks anticipated swings in Treasury yields based on options — has averaged about 106 so far this year versus 77 over the past decade.

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Bond Market Volatility and its Impact on StocksAs U.S. interest rates rise and bond yields reach new highs, stocks may be affected by bond market volatility. A calm bond market is crucial for all markets as borrowing costs are tied to Treasury yields. Higher volatility leads to higher risk premiums and discount rates on financial assets. The current level of bond market volatility is relatively low but has increased recently.
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Markets today: Stocks rise and bond yields fall after U.S. jobs reportStock futures rose and bond yields fell after the latest jobs report bolstered confidence the U.S. Federal Reserve will be able to start cutting rates this year.
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