Fed Rate Boost Pushed to November 2015 by Jobs Data, Swaps Show

Swaps traders have pushed back expectations for the Federal Reserve’s first interest-rate increase since adopting extraordinary monetary stimulus to about November 2015 after a government report showed slower-than- forecast jobs growth in March.

The forward rate on overnight index swaps, or OIS, for that month is 38.6 basis points. That is the point where the market is pricing in a 0.25 percentage point increase above the current rate. The target range for the central bank’s effective funds rate is zero to 25 basis points. A basis point equals 0.01 percentage point.

That compares with yesterday, when OIS showed July 2015 as the likely date for a rate increase at 39.3 basis points. On March 11, when the benchmark 10-year Treasury note yield closed at 2.06 percent, its high for 2013, the market was projecting a rate increase for March 2015 with OIS priced at 45.3 basis points.

“Today’s movement is significant because of the change in expectations around the Fed because of the payrolls number,” said Joe Abate, a strategist at Barclays Plc, one of 21 primary dealers that trade with the central bank.

Fed Measures

The Fed cut its benchmark rate for overnight loans between banks to between zero and 25 basis points in December 2008 as credit markets froze in the wake of the collapse of Lehman Brothers Holdings Inc. The central bank purchased $2.3 trillion of securities between November 2008 and June 2011, and currently buys $85 billion of bonds a month to combat deflation concern and stimulate investment in risk assets.

Ten-year note yields fell eight basis points, or 0.08 percentage point, to 1.69 percent at 1:21 p.m. New York time, according to Bloomberg Bond Trader data. They touched 1.68 percent, the lowest level since Dec. 12.

Nonfarm payrolls grew by 88,000 workers last month, the least in nine months, even as the unemployment rate declined to 7.6 percent, the Labor Department said. Economists had forecast a 190,000-job gain and a steady jobless rate at 7.7 percent.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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