Bond Market Reacts Sharply to Layoff Spike and Legal Uncertainty
Treasury yields moved lower across the curve as fixed income markets responded to the deteriorating labor outlook. The 10-year yield fell more than 6 basis points to 4.089%, while the 2-year yield dropped to 3.566%. The 30-year yield eased to 4.686%.
The move followed skepticism from U.S. Supreme Court justices over the legality of reciprocal tariffs introduced during the Trump administration. A ruling against the policy could reduce trade tensions and inflation expectations, further weighing on yields.
The bond market’s dovish repricing pushed CME FedWatch’s implied probability for a December rate cut to 69%, up from 62% the previous day, reversing some of the hawkish repricing seen after the Fed’s November statement.
Cross-Currency Moves Reinforce Dollar Weakness
The dollar faced additional pressure from cross-currency moves. The euro climbed 0.3% to $1.15225, while sterling advanced to $1.3088 after the Bank of England left rates on hold. Though widely expected, the BoE’s decision helped preserve yield differentials relative to the dollar, reinforcing selling pressure in the DXY basket. The yen also strengthened, with USD/JPY falling 0.4% to 153.51, further dragging on the index.
