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Swap contracts tied to Fed meeting dates are again pricing in almost six quarter-point cuts and see a more than 70% chance of a quarter-point policy-rate decrease in March. While those bets pared following a job creation report that topped estimates and came with hot wages, the market quickly bounced as a deeper read into the payrolls report, large revision to November payrolls, and a soft reading on the US service sector emboldened traders.

Yields moved in tandem — rising sharply in the immediate aftermath of the employment data before going on to swoon as investors used the rise in yields to snap up Treasuries.

Read more: Do You Dot Plot? Understanding How the Fed Forecasts: QuickTake

Swaps Add to Pricing of March Rate Cut

March cut odds around 70% after weak components to ISM services datahttps://www.bloomberg.com/toaster/v2/charts/abfa7222fd71a7363005c07ab5303ab0.html?brand=markets&webTheme=markets&web=true&hideTitles=true

Source: Bloomberg

Change in Fed’s interest-rate target implied by overnight index swaps and SOFR futures. Fed dots use interpolation.

The rebound in Treasury yields to start the year comes after bonds rallied sharply in the last two months of 2023 on signals that the Fed is pivoting toward more dovish monetary policy. But with bonds down 0.75% so far this year through Thursday’s close, and yields remaining higher for the week, many in the market are welcoming the uptick in rates as an opportunity to recalibrate their wagers.