Bond Market Update

Data Recon

• Q3 productivity increased 4.9% in the third quarter (Briefing.com consensus: 2.5%) following an upwardly revised 4.1% (from 3.3%) in the second quarter. Unit labor costs decreased 1.9% (Briefing.com consensus: 0.8%) following a downwardly revised 2.9% decline (from 1.0%) in the second quarter.
  • The key takeaway from the report is that it is the golden ticket for the economy (and the Fed, per chance), as it reflects strong growth without labor cost inflation.
• Initial jobless claims for the week ending January 3 increased by 8,000 to 208,000 (Briefing.com consensus: 217,000). Continuing jobless claims for the week ending December 27 increased by 56,000 to 1.914 million.
  • The key takeaway from the report is that initial claims are quite low to support a view that consumer spending should hold up; however, continuing claims remain high enough to support a view that the Fed will worry enough about a softening in the labor market (i.e., weak hiring activity) such that it remains inclined to pursue easier monetary policy.
• The U.S. trade deficit in October narrowed sharply to $29.4 billion (Briefing.com consensus: -$61.3 billion) from an upwardly revised deficit of $48.1 billion (from -$59.6 billion) in September. The improvement resulted from exports being $7.8 billion more than September exports and imports being $11.0 billion less than September imports.
  • The key takeaway from the report is that the headline deficit number is the lowest since June 2009. A residual takeaway is that the improvement clearly has something to do with the introduction of higher tariff rates that have detracted from import demand.
• Yield Check:
  • 2-yr: +2 bps to 3.49%
  • 3-yr: +3 bps to 3.55%
  • 5-yr: +4 bps to 3.73%
  • 10-yr: +4 bps to 4.18%
  • 30-yr: +4 bps to 4.86%