It has been quite a dramatic last few days in the bond market, as Treasury yields are cratering now ahead of the US non-farm payrolls data later today. 2-year yields hit a high of 5.08% earlier in the week but have now fallen by over 30 bps to 4.76%. Meanwhile, 10-year yields have backed away from the 4% threshold in a fall to 3.81% currently. Oof.
Fed fund futures may still show that odds of a 50 bps rate hike are at around 63% (down from 76%) but market-implied probability is showing that a 50 bps move is now roughly 50%. That indicates a reset in the odds to basically being a coin flip right now, between a 25 bps and 50 bps move.
That being said, the drop in yields may indicate that something else is amiss here. This is looking like a full-fledged flight to safety with equities also getting pummeled. Wall Street saw a sharp decline in trading yesterday and S&P 500 futures are following that with another 29 points drop now, or 0.7%, ahead of European trading.
It is either a sign of traders fearing economic distress or perhaps there is a credit risk floating around in markets under the sheets.
In any case, there are certainly real nerves being felt right now ahead of the jobs report later in the day.
