Why the Bond Markets Survived Stellar Jobs Numbers



Better-than-expected June payrolls

The bond markets (BND) have survived better-than-expected US payroll additions last week. The US economy added 222,000 jobs in June 2017 amid broad-based gains and a net upward revision of 47,000 jobs compared to the previous two months.

The one lump in the jobs report was a minor uptick in the unemployment rate to 4.4%, compared to 4.3% in the previous month. Hourly earnings also had limited growth at 0.2%, a downward revision to the previous month’s growth. Fixed income market players usually look at the unemployment rate and hourly earnings in the jobs report to decide their moves, but the overstretched selling of bonds in recent weeks limited the sell-off this time around.

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Market’s reaction and speculators’ positions

US Treasuries (GOVT) had little new information to react to last week. The outlook for the Federal Reserve’s rate trajectory remains the same. The bond market sell-off continued as yields shot up across the board. The 2-Year Treasury Bond Yield (SHY) closed at 1.4%, a rise of 1.2%. The 10-Year Treasury Bond Yield (IEF) shot up to 2.4%, a rise of 3.6%, and the 30-Year Treasury Bond Yield (TLT) closed at 2.9%, a weekly rise of 3.3%.

According to the latest Commitment of Traders (or COT) report, which was released on July 7 by the Chicago Futures Trading Commission (or CFTC), bond futures speculators have reduced their net bullish positions for the second week in a row. The total net positions in 10-year note futures stood at 263,000 contracts, a fall of 39,000 contracts compared to the previous week.

Bond market supply in this week

Supply in the bond market is heavy this week, with $56 billion in short-term coupons that include $24 billion in new 3-year notes, $20 billion in 10-year notes, and $12 billion in 30-year bonds. The supply glut is likely to add to the bearish outlook on bonds this week.

Economic data from the United States and Janet Yellen’s testimony to the House Committee on Financial Services on July 12 and the Senate Committee on Banking, Trade and Commerce on July 13 should drive action in bond markets this week.


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