(Bloomberg) -- The bond market is growing less convinced by the day that the Federal Reserve will embark on two further interest-rate cuts this year.
Traders are pricing in roughly 20% odds that the Fed holds rates steady in either November or December. This time last week, even after Friday's blockbuster jobs report, swaps still implied more than 50 basis points of cuts by year-end, likely via consecutive cuts.
Treasuries have slumped this week as a result. A Bloomberg gauge of US bonds is poised for a fourth-straight week of declines — its worst streak since April. Yields on 10-year notes are back above 4%, and the 30-year bond's yield at 4.41% is the highest since July 30.
The shift reflects a slew of mixed reports on the US economy that have failed to make the case for significantly looser monetary policy. While the Fed's so-called dot plot of officials' rate expectations projects two further cuts this year, Atlanta Fed President Raphael Bostic said this week he would consider a pause in rate cuts, and San Francisco Fed President Mary Daly said one or two further cuts this year are likely.
"The market is less sure about what happens in upcoming FOMC meetings, but more confident — judging by a near-50-basis-point rise in 10-year yields since mid-September, that a 'hard landing' is going to be avoided," Societe Generale SA's Kit Juckes wrote in a note. That suggests a view that "'no-landing' is as likely as a soft landing, bringing with it concern that if fiscal restraint isn't forthcoming, upside inflation risks may re-emerge."
Hotter-than-forecast consumer inflation data on Thursday reinforced signs of an uptick in wage pressures seen in last week's payrolls data. Wholesale prices data released Friday were more benign overall.
Activity in derivatives markets shows investors hedging for fewer rate cuts than currently expected. Demand for options referencing the Secured Overnight Financing Rate has focused on contracts that target one additional rate cut this year. And in the futures market, there's been a wave of liquidations of bets on bond gains.
--With assistance from Ye Xie.
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