bond yields fell on monday retracing some of the sharp bounce delivered by a much stronger than expected us jobs report the 10year to 2year spread of nearly minus 20 basis points means the yield remains inverted signaling the bond market expects an economic downturn investors are continuing to absorb friday’s robust us labor report and its implications for the pace of federal reserve interest rate rises as the central bank strives to tackle inflation at multidecade highs news that the world’s biggest economy added 528000 jobs in july more than twice the number forecast caused a selloff in bonds and a spike in benchmark yields as traders added to bets that the fed will be more aggressive at its next ratesetting meeting some of that yield bounce was being pared on monday “it is clear that the fed will need to do more to get the labor market into sustainable balance the unemployment rate ticked down to 35 the lowest in over a halfcentury and average hourly earnings rose a strong 05 mm last month” wrote economic and policy strategists at jpmorgan chase in a note “given this source of underlying inflationary pressure we now think the fed will raise rates by 75bp in september while we continue to expect 25bp hikes in november and december bringing the terminal rate to 35375” they added markets are indeed pricing in a 675 probability that the fed will raise interest rates by another 75 basis points to a range of 300 to 325 after its meeting on september 21 but before that the central bank will have the opportunity to consider two more monthly consumer price index cpi reports the first coming this week “after a bumper nonfarm payrolls print market attention turns to us cpi on wednesday a slowdown in inflation remains the base case but details of the cpi data will be critical backtoback storming inflation prints will likely lead to complete repricing of the september fed meeting and ultimately where the fed ends up” said stephen innes managing partner at spi asset management rubeela farooqi chief us economist at high frequency economics agrees and thinks the market is being too sanguine about the potential for interest rate cuts by the fed next year “if this week’s cpi surprises to the upside then an even larger onepercentagepoint increase will surely be on the table we think market pricing of rate cuts next year are misplaced given the current trajectory of wages and prices even if the risks around growth are to the downside” said farooqi in a note to clients