Rates as of 0500 GMT
Market Recap
It all came down to Fridays spectacular US nonfarm payrolls, which far exceeded expectations see table above commentary below.
With the labor market clearly stronger than what the Fed and the market had anticipated, US rate expectations rose. The market is now assuming that the fed funds rate will peak at 3.65 in April, which is one rate hike more than it was assuming on Thursday.
The odds now favor another 75 bps hike in September.
The change wasnt confined to the US. Rates rose globally at both ends of the yield curve except of course in Japan. That explains the weakness in the yen, USDJPY moved back above 135 after having been as low as 130.41 just a few days ago Aug. 2nd.
Im at a loss to explain the big rise in Eurozone yields, or more specifically, German bond yields. Bloomberg just said that European bonds follow Treasuries lower but that doesnt explain why they fell even more than Treasuries. Its especially surprising after Moodys downgraded Italys sovereign rating outlook to negative on Friday. This is worrisome as Moodys currently rates Italy at Baa3, only one level above subinvestment grade status. If Moodys rates Italy at junk bond status, it could force some fund managers who arent allowed to hold such lowrated debt to sell. I wouldve thought that the dangers in Italy mightve forced money into German bonds and thereby kept German yields from rising so much, but in fact peripheral spreads were little changed….