Bloomberg relayed the news: A trader placed an aggressive bet that the US 10-year yield would rise to 4.15%, from 4% yesterday and even 3.91% earlier in the day. For such an event to occur, the US employment report would have to be sufficiently strong for the market to fear that the Fed might delay cutting its key rates. Indeed, the US central bank has warned investors against being too optimistic about inflation, and therefore about the pace of monetary policy easing. If macroeconomic data are too good, efforts to curb rising prices may have to be maintained for longer than expected.

10 million to recover?

The decline in equity markets over the past few days has been driven by a recalibration of interest-rate expectations. At the end of 2023, the probability of a first Fed rate cut as early as March was 90%. This percentage fell to 72% yesterday, after solid indicators on the employment front, and even to 60% this morning, in anticipation of the afternoon's statistics. It is therefore not illogical for intermediaries to hedge their bets, fearing a rise in yields and hence a fall in bonds (the two characteristics move in opposite directions on the bond market). Nevertheless, the scale of the bet (15 basis points of lag) attracted a great deal of attention.

Bloomberg points out that the order concerned so-called "Friday Week One" options on the US 10-year, which are often used to hedge positions on specific risk events. The financial agency adds that if the 10-year yield were to rise to 4.20% during the session, the trade could bring in $10 million.

Big shifts

Market expectations for this job data are very mixed. The consensus is for 168,000 jobs to be created in the US in December, after 199,000 in November, but there are whispers that the figure could be closer to 185,000. Some forecasters are even much higher. The unemployment rate is similarly divergent, with a rate expected at 3.7%, close to November's figure, but with expectations varying around this level.