Interest rate hike expectations rose after employment data

After stronger-than-expected non-farm payrolls in the US, expectations that the Fed would raise interest rates at its May meeting increased in bond markets.

With the increasing expectation that the Fed will tighten its monetary policy further, the shortest-term bond yields increased by 19 basis points to 4.83 percent. This pricing indicates that Fed officials will increase interest rates with a 3 in 4 probability.

While the 2-year treasury bond yield increased by 12 basis points to 3.96 percent, the 10-year benchmark interest rate increased by 7 basis points to 3.38 percent. The difference in yield between 2 and 10 years has deepened.

The market has also reduced the amount of cuts it expects in the policy rate towards the end of 2023. Swap markets are pointing to a Fed benchmark interest rate of about 4.33% by the end of December. This rate was 4.18 percent before the data were released.

The dollar strengthened against the yen and euro.

After the non-farm employment increase announced in February was revised to 326 thousand, the increase in non-farm employment in the USA was recorded as 236 thousand in March. While the unemployment rate in the country fell to 3.5 percent, hourly wages increased by 0.3 percent.

The expectation of economists participating in the Bloomberg survey was that the US economy created 230 thousand net non-farm jobs in March and wages increased by 0.3 percent.