TD Securities said recent moves in the US rates market were driven by shifting headlines on Iran and end-of-month position adjustments. The Treasury curve steepened on Friday after conflicting reports around an end to the war in Iran pulled rates in different directions, before a late rally into month-end. That rally coincided with a 0.10y month-end extension for Treasuries, reinforcing focus on duration dynamics and near-term moves in the US Dollar and US yields.
Attention now turns to a data-heavy week led by labour and activity releases. TD expects a dovish nonfarm payrolls outcome of 60k, while the unemployment rate is seen edging up to 4.4%. Alongside NFP, the calendar includes ISM services and manufacturing, with JOLTS and ADP earlier in the week, and the Supreme Court expected to deliver decisions on Thursday. For ISM manufacturing, TD forecasts a 1pt rise to 53.7 versus consensus at 53.0, driven by a rebound in production, while the prices paid index is also in focus given the ongoing oil shock and higher input costs.
Market Volatility And Labor Data Outlook
As we start the month of June 2026, recent interest rate movements have been noisy, driven more by geopolitical headlines and month-end portfolio adjustments than by core economic data. This sets up a critical week where upcoming statistics will dictate market direction. We anticipate significant volatility in both US Treasury yields and the Dollar.
We are positioning for a weak nonfarm payrolls report, with an expectation of only 60,000 jobs created and a rise in the unemployment rate to 4.4%. Recent initial jobless claims have been trending higher, averaging 245,000 over the past four weeks, which supports our view of a cooling labor market. A weak labor print would likely cause interest rates to fall, making call options on Treasury futures an interesting play.
Manufacturing Sector Signals And Trading Opportunities
However, we see conflicting signals from the manufacturing sector and expect the ISM index to climb to 53.7, above the consensus view. This is supported by the latest S&P Global Flash PMI which registered a solid 52.5, its highest level in four months. A surprisingly strong manufacturing report would push rates higher, putting downward pressure on bond prices.
Given these opposing forces from the labor and manufacturing data points, we anticipate a spike in volatility. Implied volatility on one-week US Dollar options has already ticked up to 7.8%, well above last month’s average of 6.5%. This makes buying options strategies like straddles or strangles on major pairs like EUR/USD attractive, as they are set to profit from a large move regardless of the direction.
The steepening of the yield curve on Friday also presents an opportunity for traders. We see value in curve steepener trades, such as going long 2-year Treasury futures while simultaneously shorting 10-year Treasury futures. This position would benefit if a weak NFP report prompts the market to price in more aggressive near-term rate cuts.
