Much to the surprise to many, Treasury yields have been climbing since the Federal Reserve lowered rates in September with an outsized half point move. A resilient economy and Trump’s victory less than two months later are the primary catalysts, leaving the 10-year yield more than 100 basis points higher than it was before the Fed’s debut rate reduction.
Many are now suggesting the 10-year benchmark yield could soon return to 5%–a level that has been breached only a handful of times over the past decade, most recently in late 2023.
BlackRock, or the world’s largest asset manager, stated that longer term bonds “look risky” given the current geopolitical and macroeconomic background.
As stated, this is a rude awakening for a market that had broadly expected yields to fall as central banks pivoted from aggressive rate hikes to cuts.
At the time of this writing, the “market” is still suggesting a cumulative 36 bps of easing this year versus almost 100 bps several months ago. The first such reduction is not fully priced in until July.
Wednesday following the release of the results of the 30-year Treasury auction, prices found a momentary “bid,” as the auction was viewed as “strong, ”perhaps the result of the selloff that lifted yields close to 5%.
The “bid” however faded after the Minutes from the recent FOMC meeting were released stating that Trump’s proposed policies “maybe” inflationary. The Minutes also indicated that the economy is at point at which “it would be appropriate to slow the pace of policy easing.” The curve steepened.
Today is the release of December’s employment data. Analysts are expecting a 165k and 140k increase in non-farm and private sector payrolls, respectively, a 4.2% unemployment rate, a 0.3% increase in hourly earnings, a 34.3 average work week and a 62.5 labor participation rate (LPR).
The employment data has consistently surprised on the upside.
According to Bloomberg, the options market is suggesting the S & P 500 will move 1.2% in either direction following the release of the jobs data.
Last night the foreign markets were mixed. London was down 0.36%, Paris up 0.18% and Frankfurt up 0.26%. China was down 1.33%, Japan down 1.05%, and Hang Seng down 0.92%.
Dow and NASDAQ futures are flat and down 0.3% but this could change radically given the significance of the 8:30 data. Oil is up over 3.5% as the cold snap tightens inventories. Moreover, there are concerns that the incoming Administration will tighten sanctions on both Russia and Iran hence crimping global supplies. The 10-year is off 2/32 to yield 4.70%.
