The market sees a less than 50% chance of a rate cut in June after hot factory data

  • Bond markets’ expectations for a rate cut fell below 50% in June after strong factory data, according to Bloomberg data.

  • ISM production data showed an increase on Monday for the first time in 16 months.

  • Inflation is in line with Fed expectations but creates a wait-and-see situation for rate cuts, a former Fed official said.

Bond market expectations of a June rate cut took a hit on Monday as new factory data pushed odds below 50%, according to Bloomberg data.

The ISM manufacturing index came in warmer than expected, showing expansion for the for the first time since 2022. A sharp increase in production and new orders fueled a recovery in the economy, ending 16 months of contraction.

As with previous data, this is another sign of continued US economic strength, casting doubt on whether the central bank should rush to reverse policy.

Following the release of the ISM report on Monday, long-term government bond yields saw one of the biggest daily gains this year, with both 10- and 30-year yields rising by around 13 basis points. Yields have risen as bond traders turned sour on expectations of rate cuts, leading to a market sell-off.

Meanwhile, swap contracts indicate that monetary policy will fall less than 65 basis points this year, according to overnight index swaps and SOFR futures cited by Bloomberg. That’s lower than the Fed…

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