Bond Market Update

Data Recon

• U.S. Treasuries rallied to fresh highs in immediate reaction to the Employment Situation report for June, which showed above-consensus nonfarm payrolls (206,000; Briefing.com consensus 185,000) coupled with below-consensus nonfarm private payrolls (136,000; Briefing.com consensus 160,000) and an unexpected increase in the Unemployment Rate (to 4.1% from 4.0%). However, longer tenors were quick to reverse from their highs, returning to levels seen before the data release while shorter tenors remain closer to their best levels of the morning.
• The June employment report did not convey a robust labor market in June. To be fair, it did not convey a weak labor market either. If anything, it conveyed a weakening labor market. The nonfarm payrolls increase (206,000) looked good, but that strength gets watered down when taking into account that private sector payrolls, which exclude government hiring, were up just 136,000. Furthermore, there was a moderation in year-over-year average hourly earnings, and downward revisions to nonfarm payrolls for April and May combined translated to employment being 111,000 lower than previously reported.
  • The key takeaway from the report is that labor market conditions are softening, which will provide the Fed some cover to cut rates in September if it so chooses.
• Yield Check:
  • 2-yr: -8 bps to 4.64%
  • 3-yr: -6 bps to 4.43%
  • 5-yr: -6 bps to 4.27%
  • 10-yr: -4 bps to 4.32%
  • 30-yr: -1 bp to 4.51%