Bond yields were muted this morning despite airstrikes in Syria yesterday and an underwhelming Jobs Report. One would think bond yields would fall given this combination of circumstances.
We will start with the jobs report.
The most recent Jobs Report notes that only 98,000 new workers were added in March, well below the 180,000 expected, while January and February readings were revised lower by a total of 38,000 jobs. The Unemployment Rate declined to 4.5% from 4.7% and below the 4.7% expected with Average Hourly Earnings rising only 0.2% versus the 0.3% expected. The Labor Force Participation Rate (which is a broader measure of employment) remained at 63%, a multi-decade low.
The significance of March’s punk Jobs Report is how it will affect the Fed’s interest rate forecast. The March jobs data does not support additional rate hikes and may give pause to the recent suggestions by the Federal Open Market Committee that 3 to 4 rate hikes are in order. Furthermore, the poor data within the jobs report supports the need for tax reform along with infrastructure spending in order to boost the economy.
Now on to Syria.
The U.S. launched a missile strike on Syria last night. U.S. officials described this as a one-off attack that would not lead to wider escalation. Typically, we would see bond yields drop in the face of such action, but we live in unusual times at the moment.
In closing, the U.S. bond market remains focused on President Trump’s economic policy reform which is unfriendly news for bond yields, and one big reason why U.S. bond yields are not trading as expected. Therefore, we continue to be cautious. This week, we are biased toward locking in interest rates at current trading levels. Should we see the 10-year Treasury break below 2.300%, we may see interest rates move lower.
