Last night yields fell across the board with the US10Y falling below 1.5% during the monthly US 10 Year Treasury Auction. Investors are still willing to buy bonds, indicating that investors don't expect rates to rise anytime soon. This is despite recent hot inflation numbers (April CPI increased 4.2% on an annual basis - the fastest rise since 2008) and the market expecting that the CPI will beat the May CP print due out within 12 hours at 8.30am EST.
Poor job numbers (NFP miss in April and May) have added to continued expectations of dovishness from the Fed as the Fed has made its primary target to return unemployment to pre Covid levels of below 4%. While job openings in April hit a new record high of 9.3 million, (according to the Labor Department’s Job Openings and Labor Turnover Survey released Tuesday), there seems to be a reluctance for workers to return to full-time work. In an effort to drive up the participation rate a number of Republican States have curbed the $300 additional unemployment benefit from the start of June or July, earlier than the Federal deadline of September. With more schools reopening and more child care available over summer this will reduce the blockages to potential workers rejoining the workforce with an estimated 6 million jobs to be have recreated by the end of 2021. (Bank of America). Those same bank economists area also predicting that around 2 million of those workers who left the workplace will take much longer to join the job market, or may not rejoin at all. This may leave the Fed in a difficult position if hotter than expected inflation numbers linger while job numbers take their time to be recreated.
For now COT sentiment shows the "smart money" as nett long on 10 Year Treasuries (although they are short 30 Year Treasuries)
Technically, the US10Y has touched its 50 day EMA and the last time this occurred was Election Day in November 2020. This may provide support and we may see a period of consolidation in rates before they return higher in anticipation of higher growth or future rate rises.
One thing is certain, high inflation and low yields are bearish for the USD and if rising fixed income bets don't pan out by end of the year, than we should see further rises in risk assets.
Poor job numbers (NFP miss in April and May) have added to continued expectations of dovishness from the Fed as the Fed has made its primary target to return unemployment to pre Covid levels of below 4%. While job openings in April hit a new record high of 9.3 million, (according to the Labor Department’s Job Openings and Labor Turnover Survey released Tuesday), there seems to be a reluctance for workers to return to full-time work. In an effort to drive up the participation rate a number of Republican States have curbed the $300 additional unemployment benefit from the start of June or July, earlier than the Federal deadline of September. With more schools reopening and more child care available over summer this will reduce the blockages to potential workers rejoining the workforce with an estimated 6 million jobs to be have recreated by the end of 2021. (Bank of America). Those same bank economists area also predicting that around 2 million of those workers who left the workplace will take much longer to join the job market, or may not rejoin at all. This may leave the Fed in a difficult position if hotter than expected inflation numbers linger while job numbers take their time to be recreated.
For now COT sentiment shows the "smart money" as nett long on 10 Year Treasuries (although they are short 30 Year Treasuries)
Technically, the US10Y has touched its 50 day EMA and the last time this occurred was Election Day in November 2020. This may provide support and we may see a period of consolidation in rates before they return higher in anticipation of higher growth or future rate rises.
One thing is certain, high inflation and low yields are bearish for the USD and if rising fixed income bets don't pan out by end of the year, than we should see further rises in risk assets.