NEW YORK: The bond market is bracing for more turbulence as a crucial reading on the still-tight US labour market is set to give traders a chance to reassess the Federal Reserve’s (Fed) commitment to its aggressive path of interest-rate hikes.
Fed officials underscored their focus on the domestic economy in the past few days, even after chaos in UK markets forced the Bank of England to intervene to preserve financial stability.
Against that backdrop, Friday’s release of the United States September job figures looms as a test of the Fed’s plan to rein in inflation by tightening policy further and unwinding its mammoth balance sheet.
Signs of a softening labour market may have some traders wagering that asset prices have baked in peak Fed hawkishness, while a strong report would risk driving yields even higher, deepening the worst losses in decades for bond investors. Either way, it’s a fair bet that more gyrations are ahead.
That’s a daunting prospect at a time when one measure of rates volatility is already the highest since the global financial crisis, sapping liquidity in the world’s most important debt market. — Bloomberg
