Treasury Rates: Navigating the Foggy Path to Payrolls
The Treasury market is facing a challenging journey ahead, with potential pitfalls and a lack of clear visibility.
Two key factors are influencing the path of US Treasuries, both leaning towards a bearish outlook. Let’s delve into these drivers and explore the potential impact on the market.
First, the Delayed Payrolls Report: A Bearish Signal?
As we approach the (postponed) September payrolls report on Thursday, the market’s expectations are set for a weak number. Typically, a 50k jobs growth figure would be considered a significant miss. However, the context has shifted, with the acknowledged lower benchmark of 150k, partly due to supply-side shocks affecting the labor market. This shift in perspective could lead to a more tolerant market reaction, indicating an economy that is resilient, albeit vulnerable.
But here’s where it gets controversial… With a new head at the Bureau of Labor Statistics, there’s a higher likelihood of conservative employment estimates to avoid the downward revisions that have plagued previous reports. This cautious approach might be seen as a bearish impulse for Treasuries, as it could indicate a more cautious market sentiment.
Second, the Delayed Release of Payroll Numbers: A Fed Advantage?
The November payroll numbers, delayed until after the December FOMC meeting, provide an opportunity for the Federal Reserve to bypass a rate cut. Chair Powell has described the current data situation as a “fog,” and the FOMC minutes reflect a lack of consensus on the December rate cut. This delay could benefit the Fed by allowing them to make a decision based on clearer data, potentially avoiding a premature rate cut.
And this is the part most people miss… The Treasury market’s response to this delay is intriguing. Typically, the market is more responsive to firm data, suggesting that the current “driving through the fog” period may lead to a bearish stance for Treasuries. This is an interesting contrast to the market’s usual responsiveness.
Thursday’s Events: What to Watch Out For
The US will finally release the delayed September jobs data, with consensus estimates at 50k payroll growth and a 4.3% unemployment rate. Other releases include October existing home sales and the Philadelphia and Kansas Fed’s manufacturing indices for November. Fed speakers, including Hammack, Barr, Cook, Goolsbee, Miran, and Paulson, will be under scrutiny for any hints on the Fed’s next move, especially given the revised data release schedule.
On the issuance front, Spain is auctioning 7Y, 10Y, and 30Y SPGB bonds worth €5.5bn. France is offering 3Y, 5Y, 6Y, and 8Y OATs totaling €12bn, along with 11Y, 15Y, and 28Y OATei bonds worth €1bn. The UK has a tender for a 27Y Gilt linker (£0.3bn), and the US is issuing a 10Y TIPS for $19bn.
As we navigate these complex market dynamics, it’s essential to stay informed and consider the potential implications. What are your thoughts on these developments? Do you agree with the potential bearish outlook for Treasuries? Feel free to share your insights and engage in the discussion below!