Monday, December 23, 2024

Treasury Yields Dip As Markets Await Jobs Report

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What’s going on here?

Benchmark 10-year Treasury yields dipped slightly on Thursday as investors eagerly awaited Friday’s employment report for May.

What does this mean?

With the benchmark 10-year note yields down 1 basis point at 4.281% and two-year note yields also dipping 1 basis point to 4.720%, market sentiment appears cautious. Investors are scrutinizing the Federal Reserve’s moves, with traders betting on potential rate cuts by September if the economy softens and nears the Fed’s 2% annual target. The inversion in the two-year, 10-year yield curve narrowed by 1 basis point to minus 44 basis points, reflecting this cautious optimism. Recent market support has been driven by an absence of fresh Treasury supply following last week’s soft auctions.

Why should I care?

For markets: Deciphering the economic puzzle.

Investors are closely monitoring Friday’s jobs report, with median economist forecasts set at 185,000 new jobs in May. Goldman Sachs is predicting a more modest 160,000 additions. April’s job gains of 175,000 – the fewest in six months – have fueled concerns. Rising jobless claims and falling job openings (down to 8.059 million at the end of April) are amplifying fears. The ADP Employment Report showed private payrolls increased by only 152,000 jobs last month, missing forecasts.

The bigger picture: Inflation and Fed’s next moves.

Wage data from Friday’s report will be crucial for assessing inflation, with ‘average hourly earnings’ as a key metric. Next week’s price index (CPI) report for May is critical, as the Fed will consider this data before finalizing their economic and rate projections during a two-day policy meeting. A Senior Portfolio Manager at HilltopSecurities Management emphasized the significance of upcoming data to determine if strong first-quarter numbers will cool in the second quarter.

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