Bond Market Update

Data Recon

• Nonfarm payrolls growth was weak in July and much weaker than thought in prior months, with employment in May and June combined 285,000 lower than previously reported. The unemployment rate was decent at 4.2%, but the U-6 unemployment rate, which accounts for underemployed workers, jumped to 7.9% from 7.7%, the labor force participation rate went down, and persons unemployed for 27 weeks or more increased to 24.9% of the unemployed from 23.3% in June. Average hourly earnings growth was decent at 0.3% and was up 3.9% year-over-year, versus 3.8% in June.
  • The key takeaway from the report is the soft nonfarm payrolls situation, as that will stoke concerns that the Fed is behind the curve, which in turn could stoke concerns that economic and earnings growth prospects are not as bright as currently envisaged. That could pose problems for a richly valued stock market, unless it trades through that noise and focuses on the notion that rate cuts are sure to follow.
• Yield Check:
  • 2-yr: -17 bps to 3.78%
  • 3-yr: -16 bps to 3.73%
  • 5-yr: -13 bps to 3.83%
  • 10-yr: -10 bps to 4.26%
  • 30-yr: -6 bps to 4.83%