Goldman Sachs analysts saw the 151,000 jobs added in August as sufficient to boost the chances of the Fed taking action during its 20 – 21 September meeting to 55%. Morgan Stanley Strategists however, say they are staying bullish on government bonds because of the continued slack in the U.S. labour market in addition to the absence of inflationary pressures which will stay the central bank’s hand.
“Our Fed call has remained resilient in the face of inevitable hawkish chatter that, just like hope, springs eternal” Hornbach and his colleagues wrote in a 2 September note to clients. “Our U.S. economists still expect the Fed to remain on hold through 2017”.
Goldman has been warning since at least February that traders weren’t prepared for how far the Fed would raise rates and that Treasury yields were poised to climb. By contrast, Morgan Stanley called 2016 the “Year of the Bull” for bonds in a March report.