Weak job market lifts expectations of interest rate cuts, US bond yields curve approaching steepest level in four years.

Amid rising expectations of interest rate cuts, persistent inflation, and concerns over fiscal deficits, the yield curve of US Treasury bonds is approaching its steepest level in over four years. On Thursday, the yield spread between 10-year US bonds and 2-year US bonds widened to 73.7 basis points, slightly lower than the peak of 73.8 basis points reached in April last year - the highest level since January 2022. With signs of weakness in the US labor market, traders have increased their bets on a Fed rate cut this year, leading to further steepening of the yield curve on Thursday. According to data released by the US Labor Department on Thursday, the seasonally adjusted initial jobless claims in the US increased by 22,000 on a weekly basis to 231,000 as of January 31, higher than economists' expectations of 212,000. Additionally, the number of job openings in the US dropped to 6.542 million in December, the lowest since September 2020 and significantly lower than the market expectation of 7.25 million; the November data was revised down from 7.146 million to 6.928 million, indicating a continued weakness in labor demand until the end of 2023. Meanwhile, according to data from outplacement firm Challenger, Gray & Christmas Inc., the number of job cuts announced by US companies in January hit the highest record since the deep recession of 2009. Last month, companies announced 108,435 job cuts, a 118% increase from the same period last year. The report also shows that hiring intentions fell by 13% year-on-year to 5,306 - the weakest January hiring data recorded by the firm since 2009. Based on overnight index swap (OIS) pricing, the Fed is expected to cut its benchmark interest rate in June - just a month after Fed Chair Powell's term ends - and to implement two to three rate cuts of 25 basis points each this year. Investors are also speculating that Kevin Warsh, Trump's nominee for Fed Chair, known for his hawkish stance, may lean towards lower rates. Martin Whetton, head of financial market strategy at Westpac Banking Corp., said, "Weak jobs data pose greater downside risks for short-term US bond yields, although the overall curve movement remains relatively parallel. However, earlier this week, the Treasury Borrowing Advisory Committee's statement indicated that additional US debt supply may arrive earlier than the previously expected November, pushing the yield curve to steepen." Data shows that US bonds have returned 0.4% this month. Amid a decline in tech stocks and a weak stock market, safe-haven demand is driving investors into US Treasury bonds, with short-term US bonds leading the way in sensitivity to Fed policy expectations.