Market Commentary 7/2/21

Bond Yields Dip On June’s Jobs Report

A better than expected June jobs report was met with a small bond rally. While the headline numbers were good, the bond market response to the report suggests bond traders may be expecting a slowing economy in the months ahead. However, given the Fed’s involvement in the markets, true price discovery has been subdued as the Fed gobbles up over $120 billion of dollars of bonds each month. Also helping to push bond yields lower was a bond-friendly print on hourly wage increases which increased less than expected. Inflation is the arch-enemy of bonds and if wage inflation proves to be transitory that would be good for keeping bond yields lower for longer.  

This Fed-friendly jobs report may allow the Fed to keep ultra-accommodative monetary policies in place longer. The equities market will respond favorably, especially high-beta long-duration tech stocks. There is some concern that the Fed has hurt homeownership as ultra-low rates have pushed many housing markets up to record levels, making it very difficult for first-time home buyers and lower-income buyers to gain access to the housing market. 

With rates under 1.500% on the 10-year Treasury, we continue to recommend taking advantage of this. We’re in a uniquely fortunate period where you can lock in an interest rate lower than printed inflation. Times like this don’t last forever.