Bond Market Update

Data Recon

• The ISM Services PMI hit 54.0% in March (Briefing.com consensus 54.9%), down from 56.1% in February. The dividing line between expansion and contraction is 50.0%, so the March reading reflects services sector activity growing at a slower pace than the prior month, when activity expanded at a pace not seen since July 2022.
  • The key takeaway from the report is that the services sector remained in expansion, but the Employment Index returned to contraction while the Prices Index saw its biggest one-month increase in over 13 years. This combination will present a headwind to growth, especially if it persists in the coming months.
• Nonfarm payrolls rebounded strongly in March, rising by 178,000 (Briefing.com consensus 51,000) from February's downwardly revised reading (to -133,000 from -92,000). The downward revision to February (-41,000) was largely offset by an upward revision to January's reading (+34,000) and the unemployment rate unexpectedly dipped to 4.3% (Briefing.com consensus 4.4%). There were a couple soft spots in the compensation side as average hourly earnings growth decelerated to 0.2% (Briefing.com consensus 0.4%), reducing the year-over-year growth rate to 3.5% from 3.8% in February, while average workweek dipped to 34.2 hours (Briefing.com consensus 34.3) from 34.3 hours. The combination produced a slight reduction in average weekly earnings (-0.1% to $1278.40).
  • The key takeaway from the report is that strong headline growth will calm some of the concerns that were brought to the forefront by the weak February reading, but it will also complicate the case for a rate cut since the labor side looks better now while inflation is likely to accelerate due to the recent spike in the price of oil.
• Yield Check:
  • 2-yr: +2 bps to 3.85%
  • 3-yr: +2 bps to 3.88%
  • 5-yr: -1 bp to 3.98%
  • 10-yr: -2 bps to 4.33%
  • 30-yr: -3 bps to 4.89%