EconomyFed swaps show 2-in-3 chance of 75 basis point...

Fed swaps show 2-in-3 chance of 75 basis point hike

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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.

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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.

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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.

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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.

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Median estimates in a Bloomberg survey of economists projected payrolls to rise by 250,000 and the unemployment rate to remain at 3.6%.

Source: Elcomercio

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