Yesterday’s economic data could not have been worse for a Treasury market already under pressure as the new year began. The 30-year Treasury yield was already hitting 52-week highs before the data dump which indicated a strong economy with inflationary undertones,
The 10-year premium—the additional yield demanded to hold longer dated debt–is at the highest level since 2015. This suggests Treasury yields may feel an upward pressure from increased supply, inflationary expectations, and from increased premiums.
Yesterday’s data indicated that job openings in November climbed above 8 million, instead of declining from the previous month to under 7.4 million. Openings were also revised up for October.
The ISM Services index was also higher than expected. The employment sub index exceeded expectations, and the prices paid subcomponent rose to the highest since early 2023.
Yields increased across the spectrum as the market is now suggesting only one interest rate cut through July. The yield curve steepened with longer dated Treasuries selling off more than shorter dated debt.
Speaking of yields, the monthly auction of 10-year notes drew the highest yield since 2007 with bonds priced at a 4.68% yield, “slightly higher than indicated at the 1:00 PM auction deadline.”
Today the Treasury auctions thirty-year debt and it is now expected to draw the highest auction yield since 2007.
As little as three years ago 10-year auctions drew yields under 1.0%.
Analysts are now suggesting that next month’s 10-year Treasury auction will post the highest yield in over 20 years. Yesterday the UK auctioned thirty-year debt with yields at the highest level since 1998 with some fearing the US will continue to follow the same trajectory.
I think Modern Monetary Theory (MMT) or the philosophy that a country can borrow with impunity if the borrowing is done in that country’s currency, has died an inglorious death.
Commenting on yesterday’s equity market activity, the NASDAQ sold off about 2% on higher yields. The Dow fell about 0.4%.
What will happen today?
Equity markets are closed tomorrow in honor of Jimmy Carter. The bond market will close at 2:00 PM but trading is expected to be subdued.
Friday is the release of the all-inclusive BLS labor report. How will the data be interpreted?
Last night the foreign markets were down. London was down 0.33%, Paris down 0.98% and Frankfurt down 0.11%. China was up 0.02%, Japan down 0.26% and Hang Seng down 0.86%.
Futures are flat. CNN reports “citing people familiar with the matter,” albeit not confirmed by any other organization, that Trump is considering a national emergency declaration for a new a new tariff program. The Trump transition team did not respond to CNN request for a comment.
The 10-year is off 4/32 to yield 4.70%.
