Longer dated US bond yields traded higher in response to a stronger than expected US jobs report. However, the 10-year US Treasury is trading under 2.300%, and still priced very attractively. There is concern from some prominent economists (Alan Greenspan is one of them) that global bond yields are artificially low, and that when interest rates finally move higher, volatility from both bonds and equities will be violent.
All eyes were carefully watching the U.S. jobs report which was out this Friday morning. The focus was on whether the report would confirm the Federal Reserve’s thesis, that job inflation is likely to be seen sooner than later.
The jobs report was a good one, with 209,000 jobs created in July, nicely above the 181,000 expected. The unemployment rate fell to 4.3% from 4.4%, the lowest since March 2001. Average hourly earnings rose by 0.3%, in line with estimates and up from 0.2% in June. Year-over-year wages grew 2.5% compared with 2.4% in June. The U6 number was unchanged at 8.6%. The U6 is total unemployed which includes all persons marginally attached to the labor force, as well as, the total employed part-time for economic reasons, as a percent of the civilian labor force. The Labor Force Participation Rate is at 62.9 from 62.8, still historically low.
However, job inflation continues to remain in check and that is one reason why the bond sell-off was mild. Given that the stock market is trading at all time highs, the current U.S. administration is pro-growth. The jobs reports continue to beat expectations. We are happy to see bond yields hang in there. However, we remain cautious (as we have for quite some time) and are biased toward locking in interest rates given the current economic and political environment.