Wall Street recalibrates the pricing of the Fed policy path, bond traders betting on a rate hike as early as September.

After strong US employment data was released, Wall Street's expectations for the Federal Reserve's policy path are undergoing a significant change. Recently, more and more bond traders are betting that the Fed may raise rates again in the coming months, with some even speculating that action could be taken as early as September. This change is mainly reflected in the trading behavior of the US interest rate market. Since the US released far better-than-expected non-farm payroll data for May last Friday, a large amount of funds have flowed into derivative markets related to interest rate trends, betting that US interest rates will further rise in the future. Traders have suddenly turned towards a "hawkish" expectation mainly because the US economy has shown more resilience than previously expected. Data shows that the US added significantly more jobs in May than all market forecasts, making it one of the strongest performances in the US labor market in nearly a year. This has led the market to reevaluate the Fed's future policy direction. At the same time, inflation issues continue to plague the US economy. Although US inflation has fallen somewhat over the past year, overall prices remain significantly higher than the Fed's long-term target of 2%. With the ongoing tensions in the Middle East pushing up energy prices, the market is worried that inflation pressures may heat up again. Gennadiy Goldberg, head of US interest rate strategy at TD Securities, said, "Strong employment growth and still elevated inflation rates are causing the market to raise expectations for further tightening of Fed policy." He believes that investors are increasingly concerned that the Fed may have to adopt a more hawkish monetary policy stance. As a result, the US bond market has been under sustained pressure recently. Bond prices move inversely to yields. When investors expect future rates to rise, they typically sell bonds, pushing up bond yields. Market data shows that the rate futures market has already largely priced in at least one rate hike by the Fed before the end of this year. Even before the release of last week's employment data, many hedge funds had already positioned themselves by building record-setting bets on rising rates. Citigroup strategist David Bieber said, "Bearish sentiment still dominates the market." However, some analysts warn that there are still significant unknowns in the market's bets on rate hikes. The next most anticipated data will be the upcoming US consumer price index (CPI) for May. If inflation data is below expectations, concerns about rate hikes in the market may quickly diminish, but if inflation continues to rise above expectations, it could further strengthen investor expectations for Fed rate hikes. It is worth noting that while derivative market traders are actively betting on rising interest rates, the attitudes of some long-term investors are relatively cautious. Morgan Stanley's latest survey shows that as of the week of June 8th, some investors have reduced their previously established short positions in bonds, with overall market sentiment shifting from bearish to neutral. Analysts believe that the market is currently in a crucial observation period. On the one hand, the US economy and job market are still strong, but on the other hand, the high interest rate environment has persisted for a long time, and the market is also closely watching whether economic growth will gradually slow down. In the coming weeks, inflation data, speeches by Fed officials, and energy price trends could all affect the market's judgment on the next steps in monetary policy. For investors, the biggest change currently is that the focus of market discussions is no longer "when will the Fed cut rates", but has shifted towards "does the Fed need to raise rates again". This shift in expectations is becoming an important driving factor behind the recent volatility in global bond and financial markets.