Us bond traders held their breath: if it is not good for non-farmers tonight, it may completely ruin the hope of Taper in September?

Treasury yields edged lower on Thursday, as the market traded cautiously ahead of Friday's Labor Department non-farm payrolls data. This will be the last non-farm report before the Fed's interest rate meeting in September and is likely to provide key guidance for the Fed to decide when to start cutting back on bond purchases, and US bond yields are also expected to be released by the blockbuster jobs report. take the opportunity to break through the recent narrow trading range.

Market data show that the yield on 10-year Treasuries fell 1.1 basis points to 1.289% in late trading in New York overnight, a narrow range for the second day in a row. The yield of other cycles is also limited. The yield on 2-year Treasuries fell 1 basis point to 0.213%. The yield on 5-year Treasuries fell 0.7 basis points to 0.77%. The yield on 30-year Treasuries fell 1.7 basis points to 1.898%.

"We have to wait until the non-farm payrolls data are released on Friday before we know where things are going." Said Subadra Rajappa, head of US interest rate strategy at Societe Generale.

Initial claims for unemployment benefits fell to their lowest level since the outbreak last week as the economy recovered, but the data did not have much impact on the bond market, according to data released by the Labor Department on Thursday. First-time claims for regular state unemployment benefits fell by 14000 to 340000 in the week ended Aug. 28. The number of economists surveyed by the media is expected to be 345000.

The figures are slightly better than expected, but not enough to change anyone's view of what is happening, or to scale back the pace of bond purchases or Friday's data. It's just within the range of estimates, "said Marshall Gittler, head of investment research at BDSwiss.

First-time claims for unemployment benefits have been falling for months, thanks to a broader economic restart and rising demand for labour. Even so, initial jobless claims are still high compared with pre-outbreak levels, and the rapidly spreading Delta mutant has injected uncertainty into the economic outlook and there is still a risk of layoffs in the future.

In the interest rate market, with the end of the demand effect of excess liquidity at the end of the month, the federal funds rate rebounded to 0.08% on Wednesday (September 1) and fell back to 0.06% on Tuesday for the first time since June.

The U.S. Treasury Department announced on Thursday that it will auction $58 billion in three-year notes, $38 billion in 10-year notes and $24 billion in 30-year notes next week.

Traders held their breath for tonight's non-farm data

Tonight, the biggest attraction of the US financial market will undoubtedly focus on the non-farm payrolls data for August, which will be released at 20:30 Beijing time.

Currently, economists interviewed by the media expect non-farm payrolls to reach 750000 in August, a strong figure, but down from 943000 in July. In other data, the unemployment rate is expected to fall further from 5.4% to 5.2%, and the average hourly wage is expected to grow 0.3% month-on-month and 4% year-on-year.

Like several recent non-farm data, industry forecasts for the non-farm report range from 300000 to 1 million, which undoubtedly adds to the uncertainty in the market tonight.

Since Federal Reserve Chairman Powell's speech at the global central bank annual meeting last week was dovish and did not signal any eagerness to announce a reduction in QE at the September meeting, many industry insiders currently expect that if tonight's non-farm data perform poorly, it is likely to completely ruin the hope of announcing Taper this month.

Lee Ferridge, head of North American macro strategy at State Street Global Markets, said, "I think the downside risks are very high, and I am not sure to what extent we have considered the impact of Delta. If you get a number that doesn't live up to expectations, say 500000 instead of 735000, in my opinion, that rules out the possibility of announcing a tapering of QE in September. This is consistent with the message delivered by Federal Reserve Chairman Colin Powell in Jackson Hole. "

"there is a lot of disagreement in the market as to whether we will announce it next month or in November," he said. Very weak data will raise concerns about economic strength. If the data are weak, the announcement will be postponed to November. "

Bank of America economists also released a report that weak employment activity would be consistent with other economic data, which have softened since the Delta strain led to a surge in the number of novel coronavirus cases. The bank expects non-farm payrolls to grow by 600000 in August. "if our payrolls forecasts come true, this may be weak enough for the Fed to want to see more data before the code is cut."

On the other hand, if the data are basically in line with or stronger than market expectations, it does not mean that the Fed will announce Taper, immediately at its September meeting, but it will at least add to the suspense of this month's interest rate meeting.

"Fed officials have made their position clear that unless things take a turn for the worse, they will start to scale back their bond purchases this year, so they will not postpone them unless the employment data for one month, or possibly several months, is much lower than expected," said BDSwiss's Gittler.

The trend of US bond yields tonight depends on the data.

George Goncalves, head of US macro strategy at Mitsubishi UFJ Financial Group (MUFG) in New York, said yields as a whole had been stuck in an "ultra-narrow range". If job growth falls significantly below 600000, the rally could pick up slightly, with 10-year yields falling by 1.2 per cent, while job growth in line with expectations could push yields higher, as most people are on the defensive.

Jim Vogel, an analyst at FHN Financial, believes that if the jobs report is considered acceptable, the regional Fed chairman will soon return to the minus issue and make a hawkish tone again, and more officials are likely to raise interest rates in 2022. This will flatten the yield curve.

The forecast for the Fed's turnaround will in particular drive up the yield on the five-year Treasury note, narrowing the gap between the yield on the five-year note and the yield on the 30-year note, Vogel said. The spread is now about 114 basis points, down from about 140 basis points before the Fed's meeting in mid-June.

It is worth mentioning that in the derivatives market, some traders were doubling their bets on the idea of an imminent sell-off in US Treasuries earlier this week. BlackRock's $13.7 billion 7-10-year ETF saw an outflow of nearly $1 billion on Wednesday, the largest one-day divestment since November.