Fed Rate Cut Bets Collapse as Jobs Data Shocks Markets; 10-year Treasury Yield Hits Critical Level

Fed rate cut expectations collapsed after stronger-than-expected U.S. jobs data changed market sentiment and forced traders to adjust their outlook. As a result, Treasury yields moved higher and erased earlier bets on policy easing. At the same time, rising oil prices tied to the U.S.-Iran conflict added pressure, strengthening uncertainty around inflation and monetary policy direction.

Fed Rate Cut Expectations Shift After Jobs Surprise

Treasury yields, according to a Bloomberg report, climbed by three to four basis points after the March employment report. This move followed a reassessment of Fed rate cut expectations. Earlier in the year, markets had priced in more than two quarter-point cuts.

However, the latest data challenged that view. Nonfarm payrolls increased by 178,000 in March, far above estimates of 65,000. At the same time, the unemployment rate fell to 4.3%, below expectations of 4.4%.

This rise marked a reversal from February. Revised figures showed job losses reached 133,000, making the March rebound more. Consequently, the labor market appeared more stable than previously thought.

As expectations shifted, traders removed remaining bets on a Fed rate cut this year. They also reduced projections for easing in 2027. Despite this adjustment, the data did not signal an urgent need for policy tightening. Tony Farren of Mischler Financial Group said the report does not support immediate rate changes. Therefore, markets now expect the Federal Reserve to remain on hold.

Following the data release, financial markets reacted in a coordinated way. Treasury prices fell as yields moved higher across maturities. At the same time, the U.S. dollar strengthened before trimming gains later in the session.

Risk assets also responded to the shift. Bitcoin price declined as traders reduced liquidity after pulling back Fed rate cut expectations. This reaction showed a larger shift in risk sentiment.

Meanwhile, positioning in the Treasury market began to change. Short positions built in recent weeks started to unwind as traders reassessed growth risks. In addition, options traders increased demand for protection against falling yields ahead of the weekend.

JPMorgan Chase & Co strategists advised closing earlier Treasury positions. Their guidance reflected the risk that stronger data could delay any Fed rate cut further. Thomas Simons, chief U.S. economist at Jefferies, said the report is largely backward-looking. He added that it does not yet capture the impact of rising energy prices or geopolitical risks.

Oil Surge Complicates Fed Rate Cut Outlook

At the same time, oil prices surged above $111 as tensions in the Middle East intensified. This increase followed concerns about delays to shipping routes, including the Strait of Hormuz and the Bab el-Mandeb Strait.

As the conflict entered its 36th day, risks continued to expand. Iran warned that disruptions could extend beyond the Persian Gulf. Consequently, markets began to price in broader energy supply risks.

Before the conflict, markets had priced in multiple rate cuts. However, rising energy costs and stronger labor data reversed that outlook. The Federal Reserve had already paused rate cuts in January after easing three times last year.