The chance of a 2-digit interest rate cut next month has gone to zero. New U.S. non-farm employment in September exceeded expectations. U.S. bond yields soared on a weekly basis.

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On October 4th, we witnessed a significant surge in U.S. Treasury yields across the 2-year, 10-year, and 30-year bond markets, marking the largest weekly increase we’ve seen in two years. This jump came on the heels of a robust jobs report for September that revealed a remarkable addition of 254,000 nonfarm jobs—far surpassing economists’ expectations of just 150,000. This strong performance hints at a potential “soft landing” for the economy, reducing the pressure on the Federal Reserve to implement significant rate cuts. As a result, traders in the futures market are now almost unanimously believing that the chances of a 50 basis point cut by the Fed next month are negligible.

According to Dow Jones, the yield on the 2-year Treasury note surged by 21.8 basis points to 3.929%, reaching its highest closing level since August 26. Over the course of the week, the yield spiked by 36.7 basis points—the most substantial weekly increase since June 10, 2022. It’s critical to note that bond yields and prices move inversely.

In addition, the yield on the 10-year Treasury rose by 13.1 basis points to 3.980%, with a weekly increase of 22.9 basis points, marking its largest rise so far in October 2023. Meanwhile, the 30-year Treasury yield increased by 8.8 basis points to 4.267%, tallying a weekly gain of 16.8 basis points. Both the 10-year and 30-year yields reached their highest levels since August 8.

The unexpectedly strong employment figures have dampened market hopes for any further rate cuts from the Fed. The U.S. Labor Department’s report indicated a decrease in the unemployment rate to 4.1%, down from 4.2%, with revisions to earlier months reflecting an increase in job additions.

Mackey Wong, the head of economic research at London-based Sad Rabbit Investment, offered his insights on the situation. He stated, “The explosion in the U.S. labor market has outpaced economists’ predictions and may disrupt the Fed’s policy plans. A jobs report this strong comes at a critical time—markets were eagerly anticipating signs of easing, making the Fed’s recent dovish shift seem reasonable.”

According to the CME FedWatch tool, traders have dramatically lowered their expectations for a rate cut during the Federal Open Market Committee (FOMC) meeting scheduled for November 7. The likelihood of a 50 basis point cut plummeted from 32.1% on October 3 to nearly zero, while expectations for a 25 basis point cut soared from 67.9% to 98.9% in just one day.

Yatzinallo, a partner and senior portfolio manager at AGILE Investment Management, commented that the Fed’s option to cut rates last month seems to be off the table. “It’s likely they will hold steady until the end of the year, depending on the data,” he noted, adding, “The market seems to have gotten a bit ahead of itself, still expecting a 50 basis point cut before year-end, but that may not come to fruition.”

Some economists are starting to question whether the Fed’s decision to cut rates last month was justified. Carson, the chief economist at J.P. Morgan, criticized the Fed for possibly acting too soon, suggesting that this could be viewed as a significant misstep. Similarly, Royall, the CFO and chief investment officer of Thrivent Financial, remarked that had policymakers anticipated the strength of the September jobs report, they would likely not have pursued such an aggressive cut last month.