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zhitong finance app learned that a key part of the u.s. treasury yield curve briefly turned positive recently, a phenomenon that usually indicates an improvement in the economic outlook. behind this shift is the market's increased expectations that the federal reserve may take more aggressive interest rate cuts, which was driven by the latest weaker-than-expected labor market data.

u.s. treasury prices rose significantly on wednesday, especially short-term bonds that are more sensitive to the federal reserve's monetary policy. the rise came as the number of u.s. job openings in july fell to the lowest level since early 2021. the data caused the two-year treasury yield to fall below the 10-year treasury yield for the second time since 2022 as traders increased their bets on an ultra-large interest rate cut by the federal reserve this month.

john fath, managing partner of btg pactual asset management us llc, pointed out that the fed may need to act sooner and may even raise interest rates by 50 basis points. if this prediction comes true, the yield curve may fully invert.

figure 1

market participants are increasing bets on a big rate cut at the federal reserve's september meeting. the interest rate swap market shows that traders have fully priced in a 25 basis point rate cut from the fed this month, and there is a more than 30% chance that the rate cut will reach 50 basis points. in addition, a total of 110 basis points of rate cuts are expected in the remaining three policy meetings this year.

wall street economists and fund managers are closely watching economic data for signs of weakness that could force the federal reserve to start a cycle of aggressive rate cuts, and wednesday's jobs data suggested labor market weakness that could prompt fed officials to act.