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Strong Jobs Report Had a Limited Impact on the Bond Market

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Bond markets continued to rebound

The US bond market was volatile in May. The ten-year yield reached a peak of 3.1% and fell to a low of 2.8% in a span of three weeks. The wild swings in the bond markets were a result of multiple factors including the dovish FOMC statement, weaker-than-expected inflation report, and a rebound in trade and geopolitical tensions. Last week, bond markets’ limited reaction to the stellar jobs report was a surprise. The unemployment rate fell to 3.8% and the average hourly earnings increased 0.3%. Although a strong jobs report increases the odds of a rate hike, the developments surrounding trade wars and domestic political uncertainties kept bond yields under pressure. The Vanguard Total Bond Market ETF (BND) tracks bond markets’ performance. BND fell 0.05% for the week ending June 1 and closed at 79.09.

Bond market performance and speculators’ positions

For the week ending June 1, the ten-year yield (IEF) closed at 2.90% and fell by three basis points. The two-year yield (SHY) closed at 2.5%—down by one basis point. The longer term 30-year yield (TLT) closed at 3.0%—down by four basis points.

According to the latest Commitment of Traders report released on June 1 by the Commodity Futures Trading Commission, speculators’ short positions on the ten-year Treasury futures decreased last week. The total net bearish positions as of May 29 increased by 112,440 contracts from 358,627 contracts to 471,067 contracts.

This week                                                                                                       

There are many factors that could impact bond markets this week. In the United States, any negative reaction to the proposed tariffs could increase the demand for bonds (BSV). Internationally, political uncertainty could widen the yield spread between the US and other developed economies, which could lead to a decline in US bond yields. Overall, the odds look biased towards another decline in bond yields, at least until the FOMC’s meeting in the second week of June.

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