Bond yields experienced an upward trend on Monday as traders eagerly anticipated a week filled with U.S. jobs-related data. Here are the key details:

Yields Movement

• The yield on the 2-year Treasury TMUBMUSD02Y, 4.891% increased by 1.7 basis points to 4.895%. It's important to note that yields move in the opposite direction to prices.
• The yield on the 10-year Treasury TMUBMUSD10Y, 3.978% rose by 3.6 basis points to 3.990%.
• Additionally, the yield on the 30-year Treasury TMUBMUSD30Y, 4.029% climbed by 2.2 basis points to 4.034%.

Market Drivers

The rise in sovereign bond yields in developed economies was predominantly influenced by optimism that Beijing will take action to stimulate China's economy, the world's second-largest. A report released on Monday emphasized that China's manufacturing sector had contracted for four consecutive months in July. However, this news only served to reinforce the belief that the Chinese government would implement a series of proposals aimed at boosting demand.

In addition to China's situation, European bond yields were also supported as German 10-year bunds TMBMKDE-10Y, 2.526% saw an increase of 3.6 basis points to 2.527%. This was partially attributed to news on Monday, indicating that eurozone core annual inflation continued to remain elevated at 5.5% in July.

U.S. Economic Updates

There are several important U.S. economic updates scheduled for release on Monday, including:

• The Chicago business barometer for July, which will be released at 8:30 a.m.
• The Fed senior loan officer survey, or SLOOS, for the second quarter, due at 2 p.m. Both times are Eastern.

In summary, rising bond yields have captured the market's attention as traders anticipate a busy week packed with U.S. jobs-related data. The hope for Chinese stimulus measures and the influence of elevated inflation in the eurozone are key factors driving the bond market at present.

Nonfarm Payrolls Report to Determine Future Monetary Policy

After Friday’s data revealed easing inflationary pressures in the U.S., all eyes are now on the upcoming nonfarm payrolls report, set to be released on Friday. This report will play a crucial role in the Federal Reserve's decision on whether to continue tightening monetary policy.

Market experts are currently predicting an 80% chance that the Fed will keep interest rates unchanged within the range of 5.25% to 5.50% after their next meeting on September 20. This estimation comes from the CME FedWatch tool.

Looking ahead, the likelihood of a 25 basis point rate hike to a range of 5.50% to 5.75% at the subsequent meeting in November stands at 29%.

According to the 30-day Fed Funds futures, it is anticipated that the central bank will not lower its Fed funds rate target to around 5% until June 2024.

Expert Opinions

With regards to the upcoming FOMC meeting on September 19-20, Jim Reid, a strategist at Deutsche Bank, stated, “Given that the outcome of the September FOMC will likely depend on the two CPIs and two payroll reports prior to the meeting, all roads this week lead to U.S. payrolls on Friday.”

Reid also highlighted the significance of tomorrow's JOLTs data, which will provide insights into the current state of the labor market beyond the headline numbers. Additionally, he mentioned that the quarterly Fed SLOOS (Senior Loan Officer Opinion Survey) expected later today could offer valuable information about where the economy might be headed in the next six to twelve months. Moreover, manufacturing (tomorrow) and services (Thursday) ISMs (Institute for Supply Management) will serve as timely indicators of the momentum in the US economy.