'Massive Short Squeeze': Yields, Rate-Hike Odds Plummet After Piss-Poor Payrolls Print

With nonfarm payrolls printing below even the weakest analyst's forecast, the market's reaction has been uniformly dovish with rate-hike odds plummeting, treasury yields tumbling, stocks soaring, dollar down and gold and crypto higher.

The biggest impact of the piss-poor payrolls print was the market basically pricing out a hike in October...

With less than one total hike (22.5bps) now priced in for 2026 (and only 2 more hikes in 2027)...

Yields are all down, led by the short-end...

Which makes sense given that heading into the print (as we previewed perfectly), Goldman's Brian Garrett says the bank's CTA model shows managers "extremely short global bonds (~$390bn notional)."

US 10Ys are at 99% of max short and 30Ys at 100%.

With systematic funds that short, a weak print, or even a 4.2% unemployment rate, could set off a massive short squeeze in bonds. 

Stocks spiked on the report, led by the most rate-sensitive names (Small Caps) and longest duration tech names...

And gold is rising (as the dollar dips)...

Tom Simons, chief US economist at Jefferies, said this payroll number “should be the nail in the coffin” for an October hike.

“We had been expecting that they would continue with successive 25 bp moves, but it now looks more likely that the policymakers emphasizing that they have some more time before another hike is needed will remain patient.”

With these revisions, employment in July and August combined is 60,000 lower than previously.

Makes you wonder if Warsh would have hiked at all if he had accurate data.

Finally, Christopher Hodge at Natixis doesn’t think these numbers move the Fed debate by a lot:

"This data won’t shift the broader decision making calculus for the Fed as inflation remains the supreme concern, but with wages lower and the jobs picture a bit less rosy, it certainly decreases the urgency to hike in October."

But with Jefferson and WIlliams already in the dovish/hold/wait-and-see camp, and the proximity to the Midterms, it seems October's hike is well and trul off the table (after topping 75% odds just a week or so ago).