More Soft Economic Data Keeps Bid in Treasuries

  • A continued string of softer data today is providing room for the Treasury rally that started yesterday to continue this morning.  PCE inflation for July due tomorrow and August job numbers on Friday remain the two headline reports that the market will be focused on before getting to the holiday weekend. Presently, the 10yr Treasury is yielding 4.11%, up 3/32nds in price while the 2yr is yielding 4.85%, up 3/32nd in price.


  • The softer reading on job openings from yesterday’s JOLTS report is being repeated today. ADP Payrolls and the latest estimate of second quarter GDP both came in lower than expected and that has Treasuries in the green this morning. As for the JOLTS report, it reported 8.8 million job openings vs. 9.5 million expected and the June number was revised lower from 9.5 million to 9.2 million. The July print is the lowest since March 2021 but still represents a decent level of openings to unemployed (see graph below) so expect more of the “more work to go” from Fed officials.


  • One thing, however, that we often mention with the JOLTS report is that even in the depth of the lockdowns (3/20 – 4/20) JOLTS was reporting over 5 million openings. Really? So, there is some uncertainty in the number, and it may imply more strength in the labor market than is reality.


  • Second quarter GDP was revised lower in its second estimate. It dipped from the originally reported 2.4% to 2.1% as business investment was revised lower offsetting slightly stronger consumer spending. The downward revision was also caused by less inventory build than was in the original estimate. Meanwhile, the Atlanta Fed’s GDPNow estimate for third quarter GDP stands at 5.9%. With all the data coming this week that estimate will be revised lower, but how much lower is the question.


  • Given the softening in most reports this week, Friday’s employment numbers take on heightened importance. If the recent bout of softening is repeated in the jobs report expect the rally in Treasuries to find additional fuel. The current expectation is for 170 thousand jobs, which would be the lowest since December 2020 and would be the third straight month of sub-200 thousand prints. Still, 170 thousand jobs would be a decent month in pre-pandemic times so the “higher-for-longer” mantra from Fed officials is likely to be repeated with an as expected report.


  • Finally, before the jobs report we get July PCE inflation numbers tomorrow and expectations are for similar readings to what we saw in June. 0.2% MoM gains in both the overall and core are expected which would match the gains in June. The YoY rates, however, are expected to tick higher as a -0.1% print from July 2022 rolls off the calculation. The good news is that the next few months see a pair of 0.3% prints roll off followed by a 0.4% print so improvement in the YoY rates are coming but not tomorrow. Modest MoM prints will play into a pause in September but remember the Fed will have August CPI which will be released on September 13, with another 0.2% MoM core print expected. If that comes to pass it will be the final piece for a September pause.

Job Openings to Unemployed Persons

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.67 5.42 5.35 5.33 5.45 5.91
0.50 5.66 5.39 5.29 5.22 5.31 5.80
1.00 5.65 5.36 5.26 5.18 5.21 5.67
2.00 5.34 5.20 5.10 5.10 NA
3.00 5.05 5.03 NA
4.00 5.00 NA
5.00 4.95 NA
10.00 NA

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Published: 08/30/23 Author: Thomas R. Fitzgerald