The aftershocks of the strong non-farm payroll report are still being felt! Swap traders are no longer fully betting on a 50 basis point rate cut by the Federal Reserve next month, and for the first time since August, they expect the remaining rate cuts for the year to be below 50 basis points, with key US Treasury yields returning to 4%.

Last Friday's explosive non-farm employment report forced traders to reassess the outlook for the Federal Reserve's monetary policy. US Treasuries continued to plummet on Monday, with the 10-year Treasury yield rising 4 basis points to 4.01%, while the 2-year Treasury yield rose 8 basis points to 4%.

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These fluctuations reflect doubts about the Federal Reserve's next move. The swap market is no longer fully pricing in a 25 basis point rate cut by the Federal Reserve at its next meeting in November, and the implied rate cut for the year-end is below 50 basis points for the first time since August 1.

Goldman Sachs strategists, including George Cole, wrote in a report, "We expect US Treasury yields to be higher, but anticipate a gradual adjustment. The strength of the September non-farm employment report may have accelerated this process, with new debates on policy restrictiveness leading to changes in expectations for the potential extent of Federal Reserve rate cuts."

European bonds followed US Treasuries lower. The German 10-year bond yield rose 4 basis points to 2.25%, the highest level in more than a month, while UK bond yields rose 6 basis points to 4.19%.

The sell-off in US Treasuries following last Friday's employment data is just the latest twist in the past year. Bond market traders have repeatedly readjusted their expectations for the US economy and Federal Reserve policy. Last week, the US service sector activity also caught them off guard, leading to further questioning of theories that the US economy is deteriorating faster than expected.

Short-term US Treasuries, which are more sensitive to monetary policy, have underperformed, bringing a key part of the yield curve back to the brink of inversion. Historically, longer-term bonds typically have higher yields, but this norm was broken for nearly two years after the Federal Reserve raised rates aggressively. Last month, the yield curve began to normalize, and the US two-year Treasury yield has already fallen below the 10-year Treasury yield.

Traders are awaiting a series of speeches by Federal Reserve policymakers for further clues on the path of interest rates. Minneapolis Fed Chairman Kashkari, Atlanta Fed Chairman Bostic, St. Louis Fed Chairman Mester, and Federal Reserve Governor Bowman will speak at different events on Monday. Federal Reserve Chairman Powell previously stated that the forecasts issued by officials and their interest rate decision in September both point to a 25 basis point rate cut at the last two meetings of the year.

US inflation data later this week is also closely watched. According to the consensus of economists, the Consumer Price Index (CPI) for September is expected to rise by 0.1% month-on-month, the smallest increase in three months.

TS Lombard Managing Director Dario Perkins said: "It doesn't take a recession to get inflation to a tolerable level, so the Federal Reserve is easing policy rather than waiting for a real economic weakness. So far, everyone should have realized that the Federal Reserve's rate cuts are only precautionary."