Fed Swaps Show 2-in-3 Chance of 75 Basis-Point Hike in September
2022.08.05 18:05
Fed Swaps Show 2-in-3 Chance of 75 Basis-Point Hike in September
(Bloomberg) — Front-end US interest rates surged following a stronger-than-anticipated monthly jobs report, with swaps now indicating that an increase of 75 basis points to the Federal Reserve’s benchmark rate is now seen as a more likely outcome than 50 basis points at the central bank’s September meeting.
The rate on swap contracts tied to the date of the September Fed meeting rose as high as 3%, some 67 basis points above the current effective fed funds rate of 2.33%. That implies a hike of at least 50 basis points is seen as definite and an approximately two-in-three chance that it could be three-quarters of a percentage point.
Contracts for early 2023 also saw rates surge and now imply a terminal Fed rate for this cycle of more than 3.6%
Front-end Treasury yields surged, deepening the inversion of the curve, with the two-year rate climbing as much as 18 basis points to 3.22%. The premium of the 2-year Treasury rate over the 10-year, a widely watched indicator, reached 43 basis points.
Nonfarm payrolls jumped 528,000 last month following an upwardly revised 398,000 gain in June, Labor Department data showed Friday. The unemployment rate fell to 3.5%, matching a five-decade low. Wage growth accelerated and the labor force participation rate eased. The median estimates in a Bloomberg survey of economists called for a 250,000 payrolls gain and for the jobless rate to hold at 3.6%.
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