Traders are now convinced that interest rates have nowhere to go but up, as seen by the leap in US 30-year treasury yields on stronger than expected GDP growth numbers released on Thursday, followed by some fairly bullish jobs data yesterday.
Kenneth Yeadon, head of Asian fixed income at HSBC Markets, said: 'We are looking at a Fed tightening later this year.' The US treasury market found some temporary relief last night, rallying hard on the back of the weaker than expected payroll numbers. The US economy created only 2,000 new jobs last month, compared with expectations of more than 117,000.
Once traders had a chance to look beyond the headline figures and absorb signs of strength in consumer spending, the long bond continued the plunge begun the night before.
Christopher Day, head of research at Fimat Derivatives, said: 'The headline numbers are weaker than expected, but the rest of the numbers show some pretty serious growth all around.' More jobs and a pick-up in the US economy might look good to most of the world, but for financial markets, a stronger economy means higher inflation; higher inflation means higher interest rates.
When the year began, most economists were still forecasting that US rates had further to fall, but the picture blurred in February and March when US economic data started showing signs of strengthening and weakening at the same time.
Such confusion was typical of a change in cycle, economists said. With this week's figures, much of that confusion has been cleared, at least in the minds of bond traders.
