US shorter-term rates rose following the release of a stronger-than-anticipated monthly jobs report. Swaps now indicate that a 75 basis point hike in the Fed’s benchmark rate is now seen as a more likely outcome than a 50 basis point hike at the central bank’s September meeting.
The rate on swap contracts linked to the date of the September Fed meeting rose to 3%, some 67 basis points above the current fed funds rate of 2.33%. That implies that an increase of at least 50 basis points is considered final and that there is a probability of approximately two in three that the hike will be three quarters of a percentage point.
Contracts for early 2023 also saw a rate hike and now imply a terminal Fed rate for this cycle of more than 3.6%.
Shorter-term Treasury yields rose, deepening the curve inversion, and the two-year rate rose as much as 18 basis points to 3.22%. The premium of the 2-year Treasury rate over the 10-year one, a widely watched indicator, reached 43 basis points.
Nonfarm payrolls rose by 528,000 last month after an upwardly revised increase of 398,000 in June, Labor Department data released on Friday showed. The unemployment rate fell to 3.5%, matching a five-decade low. Wage growth accelerated and the labor force participation rate declined.
Median estimates in a Bloomberg survey of economists projected payrolls to rise by 250,000 and the unemployment rate to remain at 3.6%.