UST Yields, NFP Data, and China’s QE Debate

As global markets brace for 2025, the looming question of whether China will implement quantitative easing (QE) holds profound implications for economic growth and financial stability. From U.S. Treasury yields reacting to Non-Farm Payroll (NFP) data to tightening global liquidity conditions, key market indicators are shifting rapidly. In this short note, I’ll go over key factors that could redefine the economic landscape in the coming year.

1. NFP (Non-Farm Payroll) Data and its Market Impact:
   • A large beat (>200k) could push UST (U.S. Treasury) 10-year yields close to but not above 3.98%, with 3.90% as a local high if the beat is smaller (+50k).
   • Risks like potential retaliatory actions by Israel could affect oil markets and bond yields, capping the back-end and supporting the trend of flattening curves.
   • In contrast, a significant miss (<100k) could lead to a drop in yields, pushing UST 10s below 3.70% by the following Monday and increasing the odds of a 50bps Fed hike in November.
   • The impact on currencies such as the DXY and USDJPY is projected at 0.5-0.6% stronger in case of a beat and 0.3-0.7% weaker in case of a miss.