Treasuries Shrug Off Strong July Jobs Report

    • Treasury prices are higher this morning as the downdraft created by the stronger-than-expected July employment report was short-lived. We remain hard-pressed to see a catalyst to materially higher rates in the near-term as the market interprets the hot jobs market as a reason for the Fed to remain aggressively hawkish which implies rate hikes until the economy falters.

     

    • Another potential catalyst came and went with the passage by the Senate yesterday of the climate, healthcare, and tax bill. The plan to increase taxes on large, profitable companies to fund spending on carbon emission tax credits as well as allowing Medicare to negotiate certain drug prices heads to the House for a vote on Friday where passage is expected. Early budget scoring has it reducing the deficit, but the economic impact will be long-range, taking several years to flow through consumer prices, thus the relative indifference by investors this morning.

     

    • A light economic calendar will be headlined by the July CPI report on Wednesday but after the hot jobs report, the market moving potential of the report is somewhat dimmed.

     

    • Be that as it may, better numbers are expected with the overall rate increasing by 0.2% vs. June’s hot 1.3% as energy and food prices take a break which has continued into August. On a YoY basis the overall rate is expected to fall from 9.1% to 8.7%. Still too high but at least moving in the right direction.

     

    • The core rate (ex-food and energy) is expected to be up 0.5% vs. 0.7% in June and YoY up 6.1% from 5.9% in June. Thus, some moderation in the overall but little improvement in the core is expected and that will keep the Fed tilted aggressively hawkish, but after the jobs report that was a given.

     

    • University of Michigan Consumer Sentiment will post preliminary readings for August on Friday with continued depressed sentiment readings expected while inflation expectations are forecast to edge a bit lower to 5.1% for the 1yr projection and 2.8% for the 5-10yr period.

Source: Bloomberg


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.23 3.22 3.18 3.20 3.32 3.78
0.50 3.21 3.19 3.12 3.09 3.17 3.67
1.00 3.21 3.16 3.09 3.05 3.08 3.54
2.00 3.14 3.03 2.97 2.97 NA
3.00 2.92 2.90 NA
4.00 2.86 NA
5.00 2.82 NA
10.00 NA

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Tags: Published: 08/08/22 by Thomas R. Fitzgerald