US Treasuries gained and traders ramped up their bets that the Federal Reserve will opt for a supersized interest-rate cut this month after a mixed report on the US labour market.

The advance pushed the yield on two-year Treasuries, which is more sensitive than longer maturities to changes in the Fed’s policy outlook, lower by as much as 11 basis points (bps) to 3.63%. Traders also boosted their bets on a half-percentage-point rate reduction later in September to about 50%, from roughly 36% before the data.

US government’s August employment report showed job creation slowed, coming in below forecast. Prior months were also revised lower and the unemployment rate fell.

Swaps traders edged higher slightly the odds of the US central bank reducing rates by a half percentage point when they gather later this month in the widely expected first cut in over four years. For all of 2024, the contracts now imply about 117bps of reductions - up from around 108bps earlier in the session.

There’s risk of more volatility through the session as traders are on alert for any signals on monetary policy’s path from Fed officials during the day. 

Immediately after the jobs data, New York Fed president John Williams said that it is now appropriate for the central bank to reduce interest rates, without indicating the size, in a speech prepared for an event held by the Council on Foreign Relations in New York Friday. Fed governor Christopher Waller will also speak at the University of Notre Dame.

“We really like listening to governor Waller” as “we think he’s probably the second most important voice at the Fed,” Aditya Bhave, senior US economist at Bank of America Corp said on Bloomberg Television prior to the data release on Friday. 

“If the markets are between 25 and 50 we would expect clear guidance from Waller,” said Bhave, which with his colleagues at BofA is forecasting a 25-basis-point cut by the Fed this month. 

  - Bloomberg