Treasury yield curve
Treasury yields expanded 9 to 14 basis points all along the curve, with a slight pullback on Friday after very disappointing payroll data. Not only did payrolls come below expectations, but the previous release was also revised downwards.
Unemployment off track
Payrolls in August reached 169 thousand, which was 11 thousand below the expected 180 thousand. Plus, the previous two months were revised down for a total of 74 thousand fewer payrolls. This means that the unemployment rate may not be on the target path the Fed wants. However, unemployment ended up dropping to 7.3% from 7.4%, but only because the participation rate (the amount of people currently employed or actively looking for a job) fell to a 35-year low. The Beatles and Rolling Stones were in full force last time labor participation was this low…
Implications on tapering
Given the weakness in the data, it’s not as clear anymore that the Fed will stick to its guns and commence tapering after the next FOMC (Federal Open Market Committee) meeting next week. However, it’s likely that tapering will start—perhaps at a slower pace or perhaps paired with a promise of low interest rates for a very long time.
Investor response so far has been mixed, with neutral fund flows in the investment-grade corporate bond (BND) and accelerating outflows in the high yield bond market (JNK). Later in this series, we’ll explore these flows and contrast them against the warm reception leveraged loans (BKLN) continue to receive by investors.
- Part 1 - Yield curve continues steepening, disappointing expectations
- Part 2 - Why budget talks and Syria friction add noise to bond yields
- Part 3 - Fixed income markets awaken after summer’s end
- Part 4 - Why corporate bond (BND) investors have mixed feelings
- Part 5 - High yield bond market is back to life after 2 weeks of silence
- Part 6 - Why strong weekly issuance is key to support strong bond prices
- Part 7 - Why investor appetite for high yield bonds (JNK) is dwindling
- Part 8 - Leveraged loans have small week, but pipeline builds up
- Part 9 - Investors favor leveraged loans, but equities may come back soon
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