Why February’s Jobs Report Had a Negative Impact on Bond Markets



The sole loser last week

The US bond markets were the only asset class that failed to rally after the February jobs report was released on March 9, 2018. The US economy added 313,000 jobs in February, and January jobs additions were revised up by 39,000. The major factor that drove markets to a 10% correction, average hourly earnings, rose only 0.1%, giving relief to concerns about rising wages.

The bond market, however, suffered further losses as every other segment of the jobs report pointed to a strong employment market, leaving the bias tilted toward further rate hikes. Rising rates are negative for the bond market, and investors holding these bonds tend to lose their asset value. The Vanguard Total Bond Market ETF (BND), which tracks the performance of the bond market, ended the week at 79.32, posting a minor loss of 0.06%.

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Bond market performance and speculator positions

For the week ended March 9, 2018, the ten-year yield (IEF) closed at 2.9%, appreciating by 3 bps (basis points). The two-year yield (SHY) closed at 2.3%, appreciating by 2 bps, and the longer-term 30-year yield (TLT) closed at 3.2%, appreciating by 2 bps.

As per the latest Commitments of Traders (or COT) report, which was released on March 9 by the Chicago Futures Trading Commission (or CFTC), speculator short positions increased for a second consecutive week. The total net bearish positions as on March 6 increased by 19,000 contracts from 343,000 contracts to 362,000 contracts. The continued gain in short positions could be a sign that traders are expecting further gains in US bond (BSV) yields.

The week ahead for the bond markets 

As we move closer to the next FOMC meeting on March 21, the upward pressure on bond yields is likely to remain intact. The focus will also be on the inflation report, which is scheduled to be reported on March 13. Another strong inflation print could push bond yields higher, as it would increase the odds of a rate hike from the US Federal Reserve.


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