New York: The bond market’s doubts about the Federal Reserve’s projections for interest rates are only growing.

After Friday’s weaker-than-forecast US September jobs report, traders are betting the Fed will wait until at least March before lifting its benchmark rate from near zero. What’s more, they don’t fully price in another hike until early 2017. That contrasts with the central bank’s forecast, published just over two weeks ago, that the target would reach 1.375 per cent by the end of 2016.

Yields plunged across Treasuries maturities Friday after the Labour Department said the economy added 142,000 positions in September, short of the median forecast of 201,000 in a Bloomberg News survey. The data add to the challenges in the US and abroad that confront Fed officials as they try to normalise interest rates. Investors are speculating that economic headwinds in Europe and Asia, as well as falling commodity prices, will push the Fed to hold back even longer.

“I don’t know how anyone could see them doing anything in the face of the figures we had,” said Thomas di Galoma, head of fixed-income rates and credit at ED & F Man Capital Markets in New York. “What you’re going to see here is Wall Street firms continue to push back their estimates of when the Fed is actually going to raise rates.”

First step

BNP Paribas SA took that step Friday, saying in a client note that it now sees Fed lift-off in March, compared with previous analysis that there was a 60 per cent chance the first increase would come in December. The bank is one of the 22 primary dealers that trade with the Fed.

Lift-off wagers have ebbed since the central bank’s decision to stand pat at its meeting last month, even as officials have sought to prepare investors for an increase. While Fed Chair Janet Yellen said last week that she was among policymakers who consider a boost would likely be appropriate this year, Friday’s data undermined investors’ confidence in that stance.

Yields on benchmark two-year Treasuries dropped about 11 basis points on the week, or 0.11 percentage point, to 0.58 per cent, the steepest tumble since April. For the week, 10-year yields dropped 17 basis points, the most since March, to 1.99 per cent.

“There’s nothing redeeming in this report,” said Priya Misra, the head of global interest-rate strategy in New York at TD Securities, another primary dealer. “Is global growth finally infecting the US economy: that’s the question this creates.”

Second guessing

Ever since the Fed ended its bond purchases in 2014, traders have been dubious of central bankers’ projections on rate increases. That pattern persists. In each of the past four policy meetings where the Fed released forecasts, officials have lowered predictions for where rates will be at the end of next year. The latest set, released after the Sept. 16-17 meeting, calls for a 1.375 per cent funds rate, down from 2.875 per cent forecast a year earlier.

If the labour report “changes the Fed’s timetable by even a month, it opens the door to the possibility that some other event could intrude” and delay lift-off again, said Jim Vogel, head of interest-rate strategy at FTN Financial Capital Markets in Memphis, Tennessee.

Last month, the Fed forecast the tightening cycle will end with the funds rate at 3.5 per cent. Yet Treasuries now indicate a peak of 1.75 per cent for almost five years, according to Vogel.

“This data does show the economy weak and it reinforces the question mark that’s been in the back of my mind for a few months whether the Fed has missed the window — missed the window maybe a year ago, a year and a half ago when they should have tried to normalised rates,” Peter Fisher, senior director of the BlackRock Investment Institute, said on Bloomberg Radio.