After Worst Rout in Years, Bonds Take Powell and Jobs in Stride

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Friday looked to be a huge day for the bond market, with the eye-catching duo of the monthly payrolls report and a speech from Federal Reserve Chairman Jerome Powell. Instead, prices barely moved -- a big improvement from a day earlier, when Treasuries suffered their worst losses since Donald Trump was elected president.

The jobs data came in weaker than expected, and the Fed chief said policy makers will act “as appropriate” to sustain the U.S. expansion. Powell added that the most likely outlook for the U.S. and world economy is continued moderate growth, but the central bank was monitoring “significant risks.”

Treasury yields wiggled around a bit as the news came out, but they’re almost unchanged for the day. The 10-year stands at 1.55%, right around its level before Powell spoke and only down a little from 1.56% the day before. Payrolls and Powell also failed to persuade futures traders to change their views about Fed rate cuts; they’re still banking on a quarter-point of easing on Sept. 18 and about 60 basis points of reductions by year-end.

But that counts as progress from Thursday, when Treasuries lost 0.7%, according to a Bloomberg Barclays index. This was the largest rout since Nov. 9, 2016, the day after the U.S. presidential election.

“Powell went very much down the middle with a do-no-harm kind of commentary, and he succeed,” said Peter Cecchini, Cantor Fitzgerald LP’s global chief market strategist. “He hit a line drive and is standing firmly on first base now. That, combined with the payrolls data this morning, leaves the Fed still set to cut rates this month by a quarter point.”

Earlier this week, amid trade tension and concern that the U.S. economy was faltering, traders were once again leaning toward 75 basis points of additional reductions this year. Some of that angst eased following Thursday’s robust report on the American services economy.

And even as many investors view the inverted yield curve as signaling a downturn ahead, Fed officials see things otherwise. Yet Powell reiterated that they committed to keeping inflation close to their 2% target. “We are not forecasting or expecting a recession,” Powell said in Zurich. Central bankers also don’t want inflation to “move materially below target,” he added.

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