Market Commentary – 12/2/16

U.S. treasury and mortgage bonds have had a rough few weeks. The 10-year treasury hit 2.44%, which is up significantly from the beginning of November. The rise in interest rates is due to the pro-business policies that President-elect Trump intends to implement, with the idea that this will increase GDP, kick-start the economy, and increase overall inflation.

Today’s November job report was the big ticket item of the week. The report came in as expected with new job creation of 178,000 versus 180,000 expected. The unemployment rate fell to 4.60% and the U-6 dropped from 9.50% to 9.30%. The U-6 rate is defined as including all unemployed people as well as “persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the labor force”. Wage growth declined in November, which is bond-friendly and is partly responsible for the mild rally today in bonds.

Given the recent rise in rates, we are biased toward floating interest rates ever so cautiously at these levels. However, we could see the 10-year treasury yield quickly going above 2.50%, so this recommendation may be short lived.